vilniaus vandenys uab annual report and financial

Vi[niaus vandençjs

INDEPENDENT AUDITOR’S REPORT,ANNUAL REPORTAND FINANCIAL

STATEMENTS FOR THE YEARENDED 31 DECEMBER2017

Vilniaus vandenys UAB

Independent Auditor’s Report,Annual Report andFinancial Statements for theYear ended 31 December2017

Vilniaus vandenys, UAB, company code 120545849, address of permanent establishment: Spaudos sir. 8-1,Vilnius, Lithuania

CONTENT

INDEPENDENT AUDITOR’S REPORT 3STATEMENT OF PROFIT (LOSS) AND OTHER COMPREHENSIVE INCOME 8STATEMENT OF FINANCIAL POSITION 9STATEMENT OF CHANGES IN EQUITY 10STATEMENT OF CASH FLOWS 11SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND OTHER NOTES 12

1. General information 122. Application of new and amended International Financial Reporting Standards 123. Accounting policy 154. Sales income 265. Other income 266. Payroll and other related expenses 267. Repairs and technical maintenance expenses 268. Other expenses 279. Financial income and expenses 2710. Income tax expenses 2611. Property, plant and equipment 2912. Intangible assets 3113. Trade and other receivables 3115. Cash and cash equivalents 3316. Share capital 3317. Reserves 3318. Borrowings and financial lease obligations 3318. Borrowings and financial lease obligations (continued) 3419. Finance lease obligations 3420. Trade and other payables 3421. Other current liabilities 3522. Financial risk management objectives and policies 3523. Related party transactions 3724. Remuneration of the management and other payments 3625. Non-cash transactions 3626. Subsequent events 3827. Commitments and contingencies 39

Eyljlr UAB Ernst & Young Baltic’ Ernst & Young Baltic UABSuba&aus g. 7 Suba&aus St. 7LT-01302 Vilnius LT-01302 Vilnius

Buildin a better Lietuva Lithuania

worki4world Tel.: (85) 274 2200 Tel.: +37052742200Faks.: (85) 2742333 Fax:+37052742333Vilniusiilt.ey.com [email protected]/lt www.ey.com/CtJuridinlo asmens kodas 110878442 Code of legal entity 110878442PVM moketojo kodas LT108784411 VAT payer code LT108784411Juridinig asmeng registras Register of Legal Entities

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of UAB Vilniaus vandenys

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of UAB Vilniaus Vandenys (the Company), which comprise the statement offinancial position as at 31 December 2017, the statement of profit (loss) and other comprehensive income, statementof changes in equity and statement of cash flows for the year then ended, and notes to the financial statements,including a summary of significant accounting policies.

In our opinion, the accompanying financial statements of the Company present fairly, in all material respects, thefinancial position of the Company as at 31 December 2017 and its financial performance and its cash flows for the yearthen ended in accordance with International Financial Reporting Standards as adopted by the European Union.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs) and Regulation (EU) No537/2014 of the European Parliament and of the Council of 16 April2014 on specific requirements regarding statutoryaudit of public-interest entities (regulation (EU) No 537/2014 of the European Parliament and of the Council). Ourresponsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financialstatements section of our report. We are independent of the Company in accordance with the International EthicsStandards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with therequirements of the Law on Audit of the financial statements of the Republic of Lithuania that are relevant to the auditin the Republic of Lithuania, and we have fulfilled our other ethical responsibilities in accordance with the Law on Auditof the financial statements of the Republic of Lithuania and the IESBA Code. We believe that the audit evidence we haveobtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of thefinancial statements of the current period. These matters were addressed in the context of our audit of the financialstatements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Statementssection of our report, including in relation to these matters. Accordingly, our audit included the performance ofprocedures designed to respond to our assessment of the risks of material misstatement of the financial statements.The results of our audit procedures, including the procedures performed to address the matters below, provide the basisfor our audit opinion on the accompanying financial statements.

A member firm of Ernst & Young Global Limited

EYBuilding a betterworking world

Key audit matters1. Impairment assessment of property, plant andequipmentProperty, plant and equipment amounts to FUR109.821 thousand in the statement of financialposition of the Company as at 31 December 2017. Asdisclosed in Note 3.24 to the financial statements, theCompany performed an annual impairment test ofthese assets as at 31 December 2017 based on thevalue in use estimation. The annual impairment testwas significant to our audit as it involves managementjudgment regarding the assumptions used in theunderlying cash flows forecasts. Furthermore, theproperty, plant and equipment represent more than81% of the total assets of the Company as at 31December 2017. Based on the outcome of thisimpairment test, the Company has not recognized animpairment charge.

2. Impairment assessment of trade accountsreceivableAs at 31 December 2017 the Company had currenttrade accounts receivable balance amounting to EUR5.727 thousand reported in the statement of financialposition, part of which was overdue as disclosed in Note13 of the financial statements. The determination as towhether a trade receivable is collectable involvesmanagement’s judgment. Specific factors managementconsiders include the age of the various receivablebalances, existence of disputes, recent historicalpayment patterns as well as data on subsequentcollections. This matter is significant to our audit due tomateriality of the amounts as these receivablesconstitute over 29% of the total current assets of theCompany in the statement of financial position as at 31December 2017 and high level of managementjudgment involved in impairment allowance calculation.

3. Contingent liabilities and provisions relating tolegal mattersAs it is disclosed in the Note 27 of these financialstatements, the Company is involved in legalproceedings and is exposed to potential claims. Thismatter is significant to our audit because an adverseoutcome of these claims and litigations could have amaterial adverse effect on the financial position, resultsof operations and cash flows of the Company and itinvolves significant managements judgment to assessthe probable outcomes of the uncertainties andconsequently the amount of provisions to be recordedand contingent liabilities to be disclosed in the financialstatements.

How the matter was addressed in the audit

Among other procedures, we involved a valuationspecialist to assist us with the assessment of theimpairment model’s structure and composition as wellas the discount rate used by the management in theimpairment test. We also considered other keyassumptions used by the management in the estimationof cash flows forecasts for revenue, costs, level ofcapital expenditure by comparing them to historicalperformance levels and management’s expectations oftheir development in the future. We tested thesensitivity in the available headroom of the impairmenttest by considering if a reasonably possible change inassumptions could cause the carrying amount ofproperty, plant and equipment to exceed itsrecoverable amount. We have also assessed thehistorical accuracy of the management’s estimates.Finally, we have reviewed the adequacy of theCompany’s disclosures included in Note 3.24 about theassumptions used in the impairment test and theoutcome of the test.

Among other procedures, we reviewed the impairmentrecorded by the Company by assessing themanagements assumptions used to calculate theimpairment. Our procedures included testing thecorrectness of aging of the receivables data and clericalaccuracy of the calculation of impairment recorded forthe customer groups based on their ageing. Wereviewed the management’s assessment of individualmaterial overdue receivables by examining theavailable repayment schedules agreed with theseclients, relevant court decisions and subsequentpayments information to support individual facts andcircumstances underlying the management’s judgmenton these receivables. In addition, we performedexternal confirmation procedures with selectedcustomers. Furthermore, we have assessed thedisclosure in the financial statements on this matter(Note 13).

Among other procedures, our audit proceduresincluded discussions with the management and theCompany’s internal legal advisor of the basis underlyingthe management’s assessment of the potentialoutcome of the claims and Iitiqations. We also obtainedletters from the external legal counsels of the Companyoutlining the material contingencies to evaluate thejudgment made by the management. We inspectedrelevant legal correspondence, meeting minutes of theBoard and Shareholders and other relevant informationto support individual facts and circumstancesunderlying the management’s judgment on provisionsand contingent liabilities, as per criteria set in lAS 37“Provisions, Contingent Liabilities and ContingentAssets”. Furthermore, we have assessed the disclosurein the financial statements on this matter (Note 27).

AmembeT Tm ol E,r,s’, a. ‘Yaur.g OcoaT Lmtvd


Other Information

Other information consists of the information included in the Company’s Annual Report, including Corporate SocialResponsibility Report, other than the financial statements and our auditor’s report thereon. Management is responsiblefor the other information presentation.

Our opinion on the financial statements does not cover the other information and we do not express any form ofassurance conclusion thereon, except as indicated below.

In connection to our audit of the financial statements, our responsibility is to read the other information and, in doingso, consider whether the other information is materially inconsistent with the financial statements or our knowledgeobtained in the audit or otherwise appears to be materially misstated. If. based on the work we have performed, weconclude that there is a material misstatement of this other information, we are required to report that fact. We havenothing to report in this regard.

We also have to evaluate, if the financial information included in the Company’s Annual Report corresponds to thefinancial statements for the same financial year and if the Company’s Annual Report was prepared in accordance withthe relevant legal requirements. In our opinion, based on the work performed in the course of the audit of financialstatements, in all material respects:

• The financial information included in the Company’s Annual Report corresponds to the financial informationincluded in the financial statements for the same year; and• The Company’s Annual Report was prepared in accordance with the requirements of the Law on FinancialReporting by Undertakings of the Republic of Lithuania.

We also need to check that the Corporate Social Responsibility Report ha5 been provided. If we identify that CorporateSocial Responsibility Report has not been provided, we are required to report that fact. We have nothing to report inthis regard.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance withInternational Financial Reporting Standards as adopted by the European Union, and for such internal control asmanagement determines is necessary to enable the preparation of the financial statements that are free from materialmisstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as agoing concern, disclosing, as applicable, matters related to going concern and using the going concern basis ofaccounting unless management either intends to liquidate the Company or to cease operations, or has no realisticalternative but to do so,

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Ammbr fjrm of Ernst & Vnunq Global Liositod

SBuilding a betterworking world

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free frommaterial misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance withISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and areconsidered material if, individually or in the aggregate, they could reasonably be expected to influence the economicdecisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticismthroughout the audit. We also:

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error.design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient andappropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud ishigher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions.misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and relateddisclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on theaudit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significantdoubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we arerequired to draw attention in our auditor’s report to the related disclosures in the financial statements or, if suchdisclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to thedate of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as agoing concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, andwhether the financial statements represent the underlying transactions and events in a manner that achieves fairpresentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timingof the audit and significant audit findings, including any significant deficiencies in internal control that we identify duringour audit.

We also provide those charged with governance with a statement that we have complied with relevant ethicalrequirements regarding independence, and to communicate with them all relationships and other matters that mayreasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of mostsignificance in the audit of the financial statements of the current period and are therefore the key audit matters. Wedescribe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter orwhen, in extremely rare circumstances, we determine that a matter should not be communicated in our report becausethe adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of suchcommunication.

A meniber lirm of Ernuf & Young Global Lin,iteg


Report on Other Legal and Regulatory Requirements

Other requirements of the auditor’s report in accordance with Regulation (EU) No 537/2014 of the European Parliamentand of the Council.

Appointment and approval of auditorIn accordance with the decision made by the shareholders we have been chosen to carry out the audit of Company’sfinancial statements for the first time on 14 November 2016. Total uninterrupted engagement period, includingprevious renewals (extension of the period for which we were originally appointed) and reappointments for the statutoryauditor, has lasted for approximately 2 years.

Consistency with the audit report submitted to the audit committeeWe confirm that our opinion in the section ‘Opinion’ is consistent with the additional Audit report which we havesubmitted to the Company and its Audit Committee.

Non-audit servicesWe confirm that to the best of our knowledge and belief, services provided to the Company are consistent with therequirements of the law and regulations and do not comprise non-audit services referred to in Article 5(1) of theRegulation (EU) No 537/2014 of the European Parliament and of the Council.

Throughout our audit engagement period, we have not provided any other services except for the audit of the financialstatements, the audit of the interim condensed financial statements for the period ended 30 April 2017 and the auditof the regulated activity report as required by the legislation.

The partner in charge of the audit resulting in this independent auditors report is Jonas Akelis.

UAB ERNST & YOUNG BALTICAudit company’s licence No. 001335

thZJonaskeIisAudi(or’s licence

$Io. 000003

26 March 2018

A member firm ol Ernl S Young Global Limilod

Vilniaus vandenys, UAB, company code 120545849, address of permanent establishment: Spaudos str. 8-1,Vilnius, LithuaniaCOMPANY’S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017(all amounts are in thousand EUR unless otherwise stated)

STATEMENT OF PROFIT (LOSS) AND OTHER COMPREHENSIVE INCOME

2017-01-01 2016-01-01Note 2017-12-31 2016-12-31

RevenueSales income 4 39.880 39.906Other income 5 1 872 527

Total revenue for the year: 41.752 40.433

Payroll and other related expensesDepreciation and amortizationRepair and technical maintenance expensesSludge treatment expensesElectrical energy expensesTransportation expensesTetecommunication and IT servicesTax expensesTrade and other accounts receivableallowanceNon-current assets write-off expensesOffice rent expense (152)Other expenses (1.778)Total expenses for the year: (24.61 6)

Operating profit (loss)

Financial income 9

Financial expenses 9

Net financial result

Profit (loss) before tax

Income tax (expenses) 10

Profit (loss) for the year

Other comprehensive income, net ofincome taxItems that will reclassified subsequentlyto profit or lossItems that will not reclassifiedsubsequently to profit or loss

Other comprehensive income for the year,net of tax

TOTAL COMPREHENSIVE INCOME FORTHE YEAR

The notes on pagps)1 41 are an integral part qf these financial statements,and signed on 26 h 2018.

Vik or ltuuinisChief Financial Officer

(10.711)(5.055)(3.463)(1.232)(2.957)

(622)(803)

(2.490)

511,12

7

13

8

(12.417)(7.607)(4.099)

(902)(3.299)

(455)(673)

(2.540)

4.711 12.552

(64) (109)

(2.366)

(21.915)

17.136 18.518

1.299 2.315

(320) (566)

979 1.749

18.115 20.267

(2.305) (334)

15.810 19.933

ISS1O 19.933

Virgilijus 2ukausksActing Gener%4rector

Zina ChmieliauskieneAccounting department manager

8

ASSETSNon-current assets

Properly, plant and equipmentIntangible assets

Deferred tax assetNon-current part of trade and other receivables

Total non-current assetsCurrent assets

InventoriesTrade and other receivables

Prepayments, deferred expenses and accrued income

Other current assets

Cash and cash equivalents

Total current assetsNon-current assets held for saleTOTAL ASSETS

EQUITY AND LIABILITIES

Equity

Share capitalLegal reserveRetained earnings (deficit)Total equity

Non-current liabilities

Borrowings and financial lease obligationsDeterred tax liabilitiesNon-current employee benefitsOther non-current liabilities

Total non-current liabilities

Current liabilities

Borrowings and financial lease obligationsTrade and other payablesAdvances receivedProvisionsIncome tax payableOther current liabilities

Total current liabilities

TOTAL EQUITY AND LIABILITIES

Zina ChmieliauskieneAccounting department

manager

ViIniaus vandenys, UAB, company code 120545849, address of permanent establishment: Spaudos str. 8-1,Vilnius, LithuaniaCOMPANY’S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017(all amounts are in thousand EUR unless otherwise stated)

STATEMENT OF FINANCIAL POSITION

Note 201 7-1 2-31 2016-12-31

1112

109.821254 23

10 - 179

110.711

13

13

14

15

1617

1810

1820

271021

5.600 -

115.675 110.913

980 5325.729 - 11044

485 442

- 1912.583 19.35219.777 33.389

- 2.615135.452 146.917

112.664 112.195

426 1168.903 (2.597)

121.993 109.714

2.141 21.183532

321 309391 102

3.385 21 .594

857 1.7212.507 1 .7471 .222 6.999

604 9771.393 8793.491 3.286

10.074 15.609

135.452 146.917

The notes on pages 12 to 41 are an integral part of these financial statements,

These financial teme S were approved and signed on 26 ar 2018.

Virgilijus 2ukaus,Js

Acting General (Pcirector

Viktbresalfànis

Chief Financial Officer

9


STATEMENT OF CHANGES IN EQUITY

RetainedTotalShare Legal

earnings equityNotes

capital reserve(losses)

Balance as at 1 January2016

Comprehensive income

Profit for the year

Total comprehensive income for the year

Increase in share capital

Balance as at 31 December 2016

Balance as at 1 January 2017Comprehensive income

Profit for the year

Total comprehensive income for the year

Increase in share capitalTransfer to reserves

Dividends



These financial stat ents were approved and signed on 26 March 2018:

Viktoras 8altu1qnisChiel Financial Officer

111.561 116 (22.530) 89.147

16

16

17

16

-- 1g.93a 19.933

-- 19.933 19.933

634 - - 634112.195 116 (2.597) 109.714

112.195 116 (.597) 109.714

-- 15.810 15.810

-- 15,810 15.810

469 - - 469- 310 (310) -

-- (4.000) (4.000)

112.664 426 8.903 121.993

Virgilijus 2u3hskasActing Ge7SI Director

Zina ChmjeliauskieneAccounting department manager

10


STATEMENT OF CASH FLOWS

201 7-01 -01 201 6-01 -01Note201 7-1 2-31 2016-12-31

Cash flows from (to) operating activities

1011,12

1011

15

15

15.810

1.5949.562

711(4.507)

64(1.285)

(25)(4.686)

(139)(361)

224

19.932

95415.135

(620)(7.527)

109

25(12.577)

45166566

5

13

9

9

13

18

Net profit (loss)Adjustments for:Income tax expensesDepreciation and amortisationChange in deferred income taxDepreciation of grantsResult from property, plant and equipment disposals andwrite-offs

Disposal of non-current assets held for saleChange in allowance of financial assetsChange in allowance of doubtful receivablesChange in allowance of inventoriesChange in provisionsInterest expensesFinancial income recognised in the statement of profit(loss) and other comprehensive income

Changes in working capital:Decrease (increase) in inventories(Increase) decrease in trade and other receivablesIncrease (decrease) in trade and other payablesIncome tax paidNet cash from operating activities

Cash flows from (to) investing activities

(Acquisition) of property, plant and equipmentProceeds from sale of noncurrent assets

Loans (recovery)Interest receivedNet cash from (to) investing activities

Cash flows from (to) financing activitiesProceeds from loans(Repayment) of loans and financial leaseInterest and similar expenses (paid)Received grantsReceived late payments and penalties(Paid) dividends(Paid) late payment fines and penaltiesNet cash from (to) financing activitiesNet increase (decrease) in cash and cash equivalents

Cash and cash equivalents at the beginning of the yearCash and cash equivalents at the end of the year


were approved and signed

Virgilijus 2uIaskas Vikto a tukoisActing Gen7l Director Chief Financial Officer

(1.203) (2.315)15.759 13.892

(412) 3116401 5.380

(5.498) 4.385(1.080) (251)15.170 23.717

(2.872) (4799)3.900 -

19 24416 1.111

1.463 (3.663)

. 10.000(1 9.906) (13.701)

(322) (590)128 1.940794 L203

(4.000) -

(96) -

(23.402) (1.148)(6.769) 18.906

19.352 445

12S83 19.352

Zina ChmieliauskieneAccounting department manager

11


SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND OTHER NOTES

1. General information

Vilniaus Vandenys, UAB (hereinafter “the Company”) was registered in on 27 March 199i the Company’s code is120545849. The address of its permanent establishment is Spaudos str. 8-1, LT-01517, Vilnius, Lithuania.

The principal activities of the Company are the supply of water and wastewater treatment services. Vilniaus Vandenys,(JAB is the largest water supply company in Lithuania. It operates water supply and waste water assets in Vilnius City,Salëininkai, Svenëionys and Vilnius District. As at 31 December 2017, the number of private customers of the Companywas 243,1 thousand (as at 31 December 2016— 239,9 thousand), juridical entities —7.5 thousand (in year 2016—7.5thousand). Private customers and juridical entities are treated as specified in Drinking-water supply and waste treatmentlaw and price set methodology. The Company supplies 86 thousand m3 water per day and collects 112 thousand m3 andtreats approximately 114 thousand m3 waste water per day. The main goals of the Company are clear water and cleanenvironment for society. The main activities of the Company — orientation to the client, efficiency of activity andtransparency.

As at 31 Deember 2017 and 2016 the shareholders of the Company were: -

2D1 7-1 2-31 201 6-1 2-31Number of Percentage Number of

shares held (%) shares held Percentage (%)

Vilnius city municipality 3.691.509 94,89 3.675.320 94,87Vilnius district municipality 73.196 1,88 73.196 1,89SvenOioniq district municipality 69.738 1,79 69.738 1,80SalOininkq district municipality 55.883 1,44 55.883 1,44

3.890.326 100,00 3.874.137 100,00

In September 2017, the Company’s share capital was increased by Vilnius district municipality contribution, valued EUR469 thousand (Note 16).

As at 31 December 2017 the number of employees of the Company was 659 (as at 31 December 2016—620).

According to the Law on Companies of the Republic of Lithuania, the annual financial statements are prepared by theManagement and should be approved by the General Shareholders’ meeting, the shareholders hold the power not toapprove the annual financial statements and the right to request new financial statements to be prepared.

2. Application of new and amended International Financial Reporting Standards

Adoption of new and/or changed IFAS and International Financial Reporting Interpretations Committee (IFRIC)interpretations

The accounting policies adopted are consistent with those of the previous financial year except for the following amendedIFRSs which have been adopted by the Company as of 1 January 2017:

• lAS 12 Prof it taxes: Recognition of Deferred Tax Assets for Unrealized Losses (Amendments)The objective of the Amendments is to clarify the requirements of deferred tax assets for unrealized tosses in order toaddress diversity in practice in the application of lAS 12 Income Taxes. The specific issues where diversity in practiceexisted relate to the existence of a deductible temporary difference upon a decrease in fair value, to recovering anasset for more than its carrying amount, to probable future taxable profit and to combine versus separate assessment.The Amendments had no impact on the Company.

• lAS 7 Cash flow statement: Disclosure Initiative (Amendments)The objective of the Amendments is to provide disclosures that enable users of financial statements to evaluatechanges in liabilities arising from financing activities, including both changes arising from cash flows and non-cashchanges. The Amendments specify that one way to fulfil the disclosure requirement is by providing a tabularreconciliation between the opening and closing balances in the statement of financial position for liabilities arising fromfinancing activities, including changes from financing cash flows, changes arising from obtaining or losing control ofsubsidiaries or other businesses, the effect of changes in foreign exchange rates, changes in fair values and otherchanges. The Amendments had no impact on the Company, as the changes in liabilities arising from financial activitieswere only due to cash flows which were disclosed in cash tlow statement.

12


2. Application of new and amended International Financial Reporting Standards (continued)

Standards issued but not yet effective

The Company has not applied the following FIRS and IERIC interpretations that have been issued as of the date ofauthorization of these financial statements for issue, but which are not effective yet:

IFRS 9 Financial Instruments: Classification and MeasurementThe standard is effective for annual periods beginning on or alter 1 January 2018, with early application permitted.The final version of IFRS 9 Financial Instruments reflects all phases of the financial instruments project and replaceslAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFIRS 9. The standardintroduces new requirements for classification and measurement, impairment, and hedge accounting. Themanagement of the Company preliminary assessed that the effect of this standard on the financial statements for theyear 2018 would be EUR 188 thousand, which would be recognised as an additional allowance for trade receivables.

• IFRS 15 Revenue from Contracts with CustomersThe standard is effective for annual periods beginning on or after.1 January 2018. IFRS 15 establishes a five-stepmodel that will apply to revenue earned from a contract with a customer (with limited exceptions), regardless of thetype of revenue transaction or the industry. The standard’s requirements will also apply to the recognition andmeasurement of gains and losses on the sale of some non-financial assets that are not an output of the entity’sordinary activities (e.g., sales of property, plant and equipment or intangibles). Extensive disclosures will be required,including disaggregation of total revenue; information about performance obligations; changes in contract asset andliability account balances between periods and key judgments and estimates. Management has assessed theapplication of the standard and based on the preliminary analysis performed, the Company does not expect significantimpact on its Financial Statements (except extended disclosure requirements) as the Company does not have long-term contracts with multi-element arrangements, no take-or-pay agreements, no sales incentives are provided, nomaterial contract costs are generally incurred and contract modifications are rare.

• IFRS 15: Revenue from Contracts with Customers (Clarifications)The Clarifications apply for annual periods beginning on or after 1 January 2018 with earlier application permitted.The objective of the Clarifications is to clarify the lASS’s intentions when developing the requirements in FIRS 15Revenue from Contracts with Customers, particularly the accounting of identifying performance obligations amendingthe wording of the “separately identifiable” principle, of principal versus agent considerations including theassessment of whether an entity is a principal or an agent as well as applications of control principle and of licensingproviding additional guidance for accounting of intellectual property and royalties. The Clarifications also provideadditional practical expedients for entities that either apply WAS 15 fully retrospectively or that elect to apply themodified retrospective approach. Management has preliminary assessed the application of the standard and standardadoption will not have a significant impact tor the Company, as described above.

• IFRS 16: LeasesThe standard is effective for annual periods beginning on or after 1 January 2019. IFRS 16 sets out the principles forthe recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer(‘lessee’) and the supplier (‘lessor’). The new standard requires lessees to recognize most leases on their financialstatements. Lessees will have a single accounting model for all leases, with certain exemptions. Lessor accountingis substantially unchanged. The management has not evaluated the impact of the implementation of this standardyet.

• Amendment in IFRS 10 Consolidated Financial Statements and lAS 28 Investments in Associates and JointVentures: Sale or Contribution of Assets between an Investor and its Associate or Joint VentureThe amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in lAS28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The mainconsequence of the amendments is that a full gain or loss is recognized when a transaction involves a business(whether it is housed in a subsidiary or not). A partial gain or loss is recognized when a transaction involves assetsthat do not constitute a business, even if these assets are housed in a subsidiary. In December 2015 the IASBpostponed the effective date of this amendment indefinitely pending the outcome of its research project on the equitymethod of accounting. The amendments have not yet been endorsed by the EU. The Amendments will have noimpact on the Company’s financial statements and results.

• IFRS 2: Classification and Measurement of Share based Payment Transactions (Amendments)The Amendments are effective for annual periods beginning on or after 1 January 2018 with earlier applicationpermitted. The Amendments provide requirements on the accounting for the effects of vesting and non-vestingconditions on the measurement of cash-settled share-based payments, for share-based payment transactions with anet settlement feature for withholding tax obligations and for modifications to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. TheseAmendments have not yet been endorsed by the EU. The Amendments will have no impact on the Company’sfinancial statements and results.

13



• lAS 40: Transfers to Investment Property (Amendments)The Amendments are effective for annual periods beginning on or after 1 January 2018 with earlier applicationpermitted. The Amendments clarify when an entity should transfer property, including property under construction ordevelopment into, or out of investment property. The Amendments state that a change in use occurs when theproperty meets, or ceases to meet, the definition of investment property and there is evidence of the change in use.A mere change in management’s intentions for the use of a property does not provide evidence of a change in use.These Amendments have not yet been endorsed by the EU. The Company has not yet evaluated the impact of theimplementation of this amendment. The Amendments will have no impact on the Company’s financial statementsand results.

• IFRS 9: Prepayment features with negative compensation (Amendments)The Amendment is effective for annual reporting periods beginning on or after 1 January 2019 with earlier applicationpermitted. The Amendment allows financial assets with prepayment features that permit or require a party to acontract either to pay or receive reasonable compensation for the early termination of the contract (so that, from theperspective of the holder of the asset there may be negative compensation’), to be measured at amortized cost orat fair value through other comprehensive income. These Amendments have not yet been endorsed by the EU. Themanagement has not evaluated the impact of the implementation of this amendment yet.

• lAS 28: Long-term Interests in Associates and Joint Ventures (Amendments)The Amendments are effective for annual reporting periods beginning on or after 1 January 2019 with earlierapplication permitted. The Amendments relate to whether the measurement, in particular impairment requirements,of long term interests in associates and joint ventures that, in substance, form part of the ‘net investment’ in theassociate or joint venture should be governed by IFRS 9, lAS 28 or a combination of both. The Amendments clarifythat an entity applies IFRS 9 Financial Instruments, before it applies lAS 28, to such long-term interests for which theequity method is not applied. In applying IFRS 9, the entity does not take account of any adjustments to the carryingamount of long- term interests that arise from applying lAS 28. These Amendments have not yet been endorsed bythe EU. The Amendments will have no impact on the Company’s financial statements and results.

• lAS 19: Plan Amendment, Curtailment or Settlement (Amendments)The Amendments are effective for annual periods beginning on or alter 1 January 2019 with earlier applicationpermitted. The Amendments require entities to use updated actuarial assumptions to determine current service costand net interest for the remainder of the annual reporting period after a plan amendment, curtailment or settlementhas occurred. The amendments also clarify how the accounting for a plan amendment, curtailment or settlementaffects applying the asset ceiling requirements. These Amendments have not yet been endorsed by the EU. TheCompany has not evaluated the impact of the implementation of this standard yet.

• IFRIC INTERPETATION 22: Foreign Currency Transactions and Advance ConsiderationThe Interpretation is effective for annual periods beginning on or after 1 January 2018 with earlier applicationpermitted. The Interpretation clarifies the accounting for transactions that include the receipt or payment of advanceconsideration in a foreign currency. The Interpretation covers foreign currency transactions when an entity recognizesa non-monetary asset or a non-monetary liability arising from the payment or receipt of advance consideration beforethe entity recognizes the related asset, expense or income, The Interpretation states that the date of the transaction,for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepaymentasset or deferred income liability. If there are multiple payments or receipts in advance, then the entity must determinea date of the transactions for each payment or receipt of advance consideration. This Interpretation has not yet beenendorsed by the EU. The Company has not evaluated the impact of the implementation of this standard yet.

The IASB has issued the Annual Improvements to IFRSs 2014— 2016 Cycle, which is a collection of amendmentsto IFRSs. The amendments are effective for annual periods beginning on or after 1 January 2017 for IFRS 12Disclosure of Interests in Other Entities (adopted by EU in 2018) and on or after 1 January 2018 for IFRS 1 First-timeAdoption of International Financial Reporting Standards and for lAS 28 Investments in Associates and Joint Ventures,Earlier application is permitted for lAS 28 Investments in Associates and Joint Ventures. These amendments will nothave any impact on the financial statements of the Group/Company.

)— IFRS 12 Disclosure of Interests in Other Entities: The amendments clarify that the disclosure requirements inIFRS 12, other than those of summarized financial information for subsidiaries, joint ventures and associates,apply to an entity’s interest in a subsidiary, a joint venture or an associate that is classified as held for sale, asheld for distribution, or as discontinued operations in accordance with FIRS 5.

- IFRS 1 First-time Adoption of International Financial Reporting Standards: This improvement deletes theshort-term exemptions regarding disclosures about financial instruments, employee benefits and investmententities, applicable for first time adopters.

> lAS 28 Investments in Associates and Joint Ventures: The amendments clarify that the election to measureat fair value through profit or loss an investment in an associate or a joint venture that is held by an entity that isventure capital organization, or other qualifying entity, is available for each investment in an associate or jointventure on an investment-by-investment basis, upon initial recognition.

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IFRIC INTERPETATION 23: Uncertainty over Income Tax TreatmentsThe Interpretation is effective for annual periods beginning on or after 1 January 2019 with earlier application permitted.The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects theapplication of lAS 12. The Interpretation provides guidance on considering uncertain tax treatments separately ortogether, examination by tax authorities, the appropriate method to reflect uncertainty and accounting for changes infacts and circumstances. This Interpretation has not yet been endorsed by the EU. The Company has not evaluatedthe impact of the implementation of this interpretation yet.

The IASB has issued the Annual Improvements to IFRSs 2015—2017 Cycle, which is a collection of amendmentsto IFRSs. The amendments are effective for annual periods beginning on or after 1 January 2019 with earlier applicationpermitted. These annual improvements have not yet been endorsed by the EU. The Group’s Management hasassessed the application of the improvements and they will not have any impact on Company’s financial statements.

r IFRS 3 Business Combinations and IFAS 11 Joint Arrangementr The amendments to IFRS 3 clarify thatwhen an entity obtains control of a business that is a joint operation, it remeasures previously held interests inthat business. The amendments to IFPS 11 clarify that when an entity obtains joint control of a business that is ajoint operation, the entity does not remeasure previously held interests in that business.lAS 12 Income Taxes: The amendments clarify that the income tax consequences of payments on financialinstruments classified as equity should be recognized according to where the past transactions or events Thatgenerated distributable profits has been recognized.

r lAS 23 Borrowing Costa The amendments clarify paragraph 14 of the standard that, when a qualifying asset isready for its intended use or sale, and some of the specific borrowing related to that qualifying asset remainsoutstanding at that point, that borrowing is to be included in the funds that an entity borrows generally.

The Company plans to adopt the above mentioned annual improvements not earlier than their effective date providedthey are endorsed by the EU.

3. Accounting policy

3.1. Statement of compliance

The financial statements of the Company have been prepared in accordance with International Financial ReportingStandards (IFRS) as adopted by the European Union (EU) and in accordance with accounting and financial reportinglegislation of the Republic of Lithuania.

3.2. Basis of preparation

These financial statements have been prepared on a historical cost basis.

Financial statements are presented in euros and all values are rounded to the nearest thousand (000 euros).

Property, plant and equipment

Property, plant and equipment acquired or constructed by the Company is recognised at acquisition (construction) costand subsequently carried at cost method. Selecting the acquisition cost method, property, plant and equipment isrecorded at cost, presented at historical cost at financial statements, less accumulated depreciation and accumulatedimpairment losses, if any.

If the property, plant and equipment is received in the form of monetary contributions (increase of the share capital), thecost of acquisition includes assets value set by real estate appraisers and all of its registration and preparation relatedcosts.

Assets received free of charge from third parties is recognised at cost determined in accordance with the real estateregistry central database and accounted for as an income in the profit (loss) and other comprehensive income statementin the period, when the asset has been received.

The acquisition value includes the cost of replacing part of property, plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. Replaced parts are written-off. All other repair andmaintenance costs are recognised in profit or loss as incurred.

The carrying values of property, plant and equipment are reviewed for impairment when events or changes incircumstances indicate that the carrying value may not be recoverable.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits areexpected from its use or disposal, any gain or loss arising on derecognition of the asset (calculated as the differencebetween the net disposal proceeds and the carrying amount of the asset) is included statement of profit (loss) and other

15


3. Accounting policy (continued)

comprehensive income in the year the asset is derecognised. Gains and losses on disposal of property, plant andequipment are calculated on the basis of the income received less the carrying amount of the property sold.

Depreciation rates of financial yearDepreciation is calculated on a straight-line basis over the useful life of the assets as follows:

Buildings 15 — 50 years.Structures S — 50 years,Transmission devices 5 — 80 years,Machinery and equipment 5 — 15 years,Vehicles 6 — 15 years,Other property, plant and equipment 5 — 8 years.

The assets residual values, useful lives and methods of depreciation are reviewed at each financial year end, andadjusted prospectively if appropriate.

Construction in progress is not depreciated until the relevant assets are completed and are available for their intendeduse.

3.3. Intangible assets

SoftwareThe costs of acquisition of new software are capitalised and treated as an intangible asset if these costs are not anintegral part of the related hardware. Software is amortised during 3 years.

Other intangiblesIntangible assets are recognised at cost less accumulated amortisation and any accumulated impairment losses, if it isprobable that future economic benefits that are attributable to the asset will flow to the enterprise. Intangible assets areamortised on a straight-line basis over 3-4 years, which is the best estimate of its useful lives.

Proiects in progressThe Company carries out the development of a billing system (MS Navision).

Gain or losses arising from derecognition of an intangible asset are measured as the difference between the net disposalproceeds and the carrying amount of the asset and are recognised in statement of profit (loss) and other comprehensiveincome when the asset is derecognised.

Costs incurred in order to restore or maintain the Company’s software are recognised as an expense when the restorationor maintenance work is carried out.

34. Impairment of non4inancial assets

At the end of each reporting period, the Company reviews the carrying amounts of its property, plant and equipment andintangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If anysuch indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairmentloss (if any). For the purposes of assessing impairment, assets are grouped at the lowest levels for which there areseparately identifiable cash flows (cash-generating units).

At the end of each reporting period, the Company reviews the carrying amounts of its intangible assets with indefiniteuseful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is anindication that the asset may be impaired.

The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. In assessing value inuse, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflectscurrent market assessments of the time value of money and the risks specific to the asset for which the estimates offuture cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, thecarrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss isrecognised immediately in statement of profit (loss) and other comprehensive income.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increasedto the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carryingamount that would have been determined had no impairment loss been recognised for the asset (or cash-generatingunit) in prior years.

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Vilniaus vandenys, UAB, company code 120545849, address of permanent establishment: Spaudos sir. 8-1,Vilnius, LithuaniaCOMPANY’S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017(all amounts are in thousand EUR unless otherwise stated)


A reversal of an impairment loss is recognised immediately in statement of profit (loss) and other comprehensive income.

3.5. Financial assets

Financial assets are classified as either financial assets at fair value through profit or loss, loans and receivables, heldto maturity investments, available for sale financial assets. The Company determines the classification of its financialassets at initial recognition. Financial assets are initially recognised at fair value plus transaction costs, except for thefinancial assets at fair value through profit or loss. Purchases and sales of financial assets are recognised on the tradedate.

Financial assets at fair value throuph profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designatedupon initial recognition accounted at fair value. The Company did not have any investments into financial assets at fairvalue through profit or loss as at 31 December 2017 and 2016.

Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets which carry fixed or determinable payments and fixedmaturities. After initial measurement held to maturity investments are measured at amortised cost using the effectiveinterest rate method. Gains and losses are recognised in statement of profit (loss) and other comprehensive incomewhen the investments are derecognised or impaired, as well as through the amortisation process. The Company did nothave any held-to-maturity investments as at 31 December 2017 and 2016.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in anactive market. Such assets are included in current assets, except for loans and receivables with a maturity greater than12 months after the balance sheet date; in this case the loans and receivables are recognized as non-current assets.

After initial recognition at cost, loans and receivables are carried at amortised cost using the effective interest ratemethod. Gains and losses are recognised in statement of profit (loss) and other comprehensive income when the loansand receivables are derecognised or impaired, as well as through the amortisation process.

Impairment loss is recognized when there is objective evidence that the Company will not be able to recover thereceivables by the deadline. Significant financial difficulties of the debtor, probability that the debtor will go bankrupt orfinancial reorganization is planning, and default or delinquency — are indications of amounts receivable impairment. Anassets carrying value is reduced and the loss is recognized in profit (loss) pad in trade and other receivables impairmentposition. When a receivable amount is not recoverable, it is written off reducing impairment amount of receivables.Previously written off, though subsequently received amounts accounted through profit (loss) in profit (loss) and othercomprehensive income statement in a separate position.

Available-for-sale financial instruments

Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale orare not classified in any of the three preceding categories. Available for sate financial assets intended to be held for anindefinite period.

Available-for-sale financial assets are initially recognized at fair value plus acquisition costs and subsequently revaluedat fair value. Unrealized gains and losses arising from changes in fair value are recognized as other comprehensiveincome, except for impairment losses and foreign exchange result. When the financial asset is derecognised, the totalaccumulated revaluation result is transferred from other comprehensive income to profit (loss) in profit (loss) and othercomprehensive income statement. The Company did not have any available for sale investments as at 31 December2017 and 2016.

Financial assets are derecognised when the contractual rights to receive cash flows from the financial assets haveexpired or when the Company has transferred substantially all of the asset inherent risks and benefits.

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3.6. Impairment of financial assets

The Company assesses at each balance sheet date whether there is any objective evidence that a financial asset orgroup of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and onlyif, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognitionof the asset (an incurred ‘loss event’) and that loss event has an negative impact on the estimated future cash flows ofthe financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may includeindications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency ininterest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and whereobservable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes inarrears or economic conditions that correlate with defaults.

Assets carried at amortised cost

For amounts due from loans and amounts due from other parties carried at amortised cost, the Company first assessesindividually whether objective evidence of impairment exists for financial assets that are individually significant, orcollectively for financial assets that are not individually significant. If the Company determines that no objective evidenceof impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in agroup of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assetsthat are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are notincluded in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as thedifference between the assets’s carrying amount and the present value of estimated future cash flows (excluding futureexpected credit losses that have not been incurred). The carrying amount of the asset is reduced through the use of anallowance account and the amount of the loss is recognised in statement of profit (loss) and other comprehensive income.If, in a subsequent year, the amount of the estimated impairment toss increases or decreases because of an eventoccurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced byadjusting the allowance account. If a future write-off is later recovered, the recovery is recognised in statement of profit(loss) and other comprehensive income.

The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate.If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interestrate.

3.7. Inventories

Inventories are valued at the lower of cost or net realizable value. Net realizable value is the selling price in the ordinarycourse of business, less the costs of completion, marketing and distribution. Cost is determined by the first-in, first-out(FIFO) method. Unrealizable inventories are fully written-off.During inventory count process all illiquid inventories are identified and allowance is formed for it. If the Commission ofinventory count states that such stock is no longer fit for use, 100% allowance is formed, for the right inventories to use— 80% impairment of value.

3.8. Non-current assets held for resale

Non-current assets classified as held for sate when their carrying amount will mainly be recovered from the saletransaction and a sale is considered highly probable. Non-current assets held for sale are stated at the lower of carryingamount or fair value less costs to sell.

3S. Cash and cash equivalents

Cash includes cash on hand and cash at banks. Cash equivalents are short-term, highly liquid investments that arereadily convertible to known amounts of cash with original maturities of three months or less and that are subject to aninsignificant risk of change in value.

For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand and in current bankaccount as well as deposits in bank with original term of three months or less.

310. Financial liabilities

Financial liabilities are classified as financial liabilities at fair value through profit or loss and other financial liabilities. TheCompany determines the classification of its financial liabilities at initial recognition. Financial liabilities are recognisedinitially at fair value and in the case of loans and borrowings — at fair value plus directly attributable transaction costs.

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Vilniaus vandenys, (JAB, company code 120545849, address of permanent establishment: Spaudos str. 8-1,Vilnius, LithuaniaCOMPANY’S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017(all amounts are in thousand EUR unless otherwise stated)


The Company’s financial liabilities include trade and other payables, bank overdrafts, loans, finance lease liabilities.

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss includes financial liabilities held for trading and financial liabilitiesdesignated upon initial recognition as at fair value through profit or loss. Gains or losses on liabihties held for trading arerecognised in statement of profit (loss) and other comprehensive income. The Company has not designated any financialliabilities as at fair value through profit or loss during the years ended 31 December 2017 and 2016.

Other financial liabilities

After initial recognition other financial liabilities (including loans and borrowings, trade and other liabilities) aresubsequently measured at amortised cost using the effective interest rate method.

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interestincome over the relevant period. The effective interest rate is the rate !hat exactly discounts estimated future cashreceipts (including all fees on points paid or received that form an integral part of the effective interest rate, transactioncosts and other premiums or discounts) through the expected life of the debt instrument, or (where appropriate) a shorterperiod, to the net carrying amount on initial recognition.

3.11. Leases

The Company as a lessee

Finance leases, which transfer to the Company substantially all the risks and benefits incidental to ownership of theleased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the presentvalue of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction ofthe lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance chargesare reflected in statement of profit (loss) and other comprehensive income.

Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, ifthere is no reasonable certainty that the Company will obtain ownership by the end of the lease term.

Operating lease payments are recognised as an expense in statement of profit (loss) and other comprehensive incomeon a straight-line basis over the lease term.

The Comoanv as a lessor

Income from operating leases is recognised on a straight-line basis over the term of the relevant lease.

3.12. Grants

Grants are not recognised until there is reasonable assurance that the Company will comply with the conditions attachingto them and that the grants will be received.

Grants received in the form of non-current assets or intended for the purchase, construction or other acquisition of noncurrent assets are considered as asset-related grants. Grants related to assets reduce cost of acquisition associatedtangible assets and recognized as income (respectively reducing related expenses — depreciation of tangible assets) inthe periods and in the proportions, which corresponds the Company’s useful life.

Grants received as a compensation for the expenses or unearned income of the current or previous reporting period,also, all the grants, which are not grants related to assets, are considered as grants related to income. The income-related grants are recognised as used in parts to the extent of the expenses incurred during the reporting period orunearned income to be compensated by that grant. As at 31 December 2017 and 2016 the Company did not have anygrants related to income.

3.13. Employee benefits

Social security expenses

The Company pays social security contributions to the state Social Security Fund (hereinafter - Fund) on behalf of itsemployees based on the defined contribution plan in accordance with local legal requirements. Defined contribution plan- a plan under which the Company pays fixed contributions to the Fund and have no legal or constructive obligation topay further contributions if the fund does not hold sufficient assets to pay to employees all benefits related to their work

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in the current and previous periods. Social security contributions are recognized as an expense on an accrual basis andincluded in payroll expenses. Since 01 January 2017 the Company pays the social security contribution at rate amountingto 31,39%.

Non-current employee benefits

The past sep-vice costs are recognised as an expense on a straight line basis over the average period until the benefitsbecome vested. Any gains or losses appearing as a result of curtailment and/or settlement are recognised in thestatement of comprehensive income as incurred. The past service costs are recognized in the statement of profit (loss)and other comprehensive income as incurred.

The above mentioned employee benefit obligation is calculated based on actuarial assumptions, using the projected unitcredit method. Obligation is recognized in the statement of financial position and reflects the present value of thesebenefits on the preparation date of the statement of financial position. Present value of the non-current obligation toemployees is determined by discounting estimated future cash flows using the discount rate which reflects the interestrate of the Government bonds of the same currency and similar maturity as the employment benefits. Actuarial gainsand losses are recognized in other comprehensive income as incurred.Current liabilities to employees are not discounted.

3.14. Contingencies

Contingent liabilities are not recognised in the financial statements. They are disclosed unless the possibility of an outflowof resources embodying economic benefits is remote.

A contingent asset is not recognised in the financial statements.

3.15. Provisions

Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of past event,it is probable that an outflow of resources embodying economic benefits will be required to settle The obligation and areliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligationat the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When aprovision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the presentvalue of those cash flows (when the effect of the time value of money is material).

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party,a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of thereceivable can be measured reliably.

3.16. Income tax

Income tax expense represents the sum of the current tax and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in thestatement of profit (loss) and other comprehensive income because of items of income or expense that are taxable ordeductible in other years and items that are never taxable or deductible. The Company’s liability for current tax iscalculated using tax rates that have been enacted by the end of the reporting period. The standard income tax rate inLithuania for the Company in the years ended 31 December 2017 and 31 December 2016 is 15%.

For companies operating in Lithuania tax losses can be carried forward for indefinite period, except for the losses incurredas a result of disposal of securities and/or derivative financial instruments not designated for hedging. Starting from 1January 2014 the transferable tax loss cannot cover more than 70% of the taxable profit of the current year. Such carryingforward is disrupted if the Company changes its activities due to which these losses were incurred except when theCompany does not continue its activities due to reasons which do not depend on the Company itself. The losses fromdisposal of securities and/or derivative financial instruments not designated for hedge can be carried forward for 5consecutive years and only be used to reduce the taxable income earned from the transactions of the same nature.

Deferred tax

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generallyrecognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable

20

Vilniaus vandenys, UAB, company code 120545849, address of permanent establishment: Spaudos str. 8-1,Vilnius, LithuaniaCOMPANY’S FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017(all amounts are in thousand FUR unless otherwise staled)


that taxable profits will be available against which deductible temporary differences can be utilized. Such deferred assetsand liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other thanin a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor theaccounting profit.

Deferred lax assets arising from deductible temporary differences associated with such investments and interests areonly recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise thebenefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred income tax assets is reviewed at each statement of financial position date and reducedto the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset tobe recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which theliability is settled or the asset realised, based on tax rales (and tax laws) that have been enacted or substantively enactedby the end of the reporting period. The measurementof deferred tax liabilities and assets reflects the tax consequencesthat would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settlethe carrying amount of its assets and liabilities.

Deferred income tax assets and liabilities are offset when they relate to income taxes levied by the same taxationauthority and the Company intends to settle its current tax assets and liabilities on a net basis.

Current and deferred tax for the period

Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in othercomprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in othercomprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initialaccounting for a business combination, the tax effect is included in the accounting for the business combination.

3.17. Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits associated with the transaction willflow to the Company and the amount of the revenue can be measured reliably. Revenue is measured at the fair value ofthe consideration received or receivable net of value-added tax and discounts.

The following specific recognition criteria must also be met before the revenue is recognised:

• Revenue is recognised when the service has been provided to the customer;• Revenue from sales of goods are recognised when the Company has transferred to the buyer the significant risks

and rewards of ownership of the goods;• Late payment interest income from overdue receivables is recognised upon receipt;• Interest revenue is recognised when it is probable that the economic benefits will flow to the Company and the amount

of revenue can be measured reliably. Interest revenue is accrued on an accrual basis, by reference to the principaloutstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cashreceipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

3.18. Borrowing costs

Borrowing costs are capitalised if they are directly attributable to the acquisition. construction of a qualifying asset.Capitalisation of borrowing costs commences when the activities to prepare the asset are in progress and expendituresand borrowing costs are incurred. Borrowing costs are capitalised until the assets are substantially ready for theirintended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss isrecorded.

3.19. Foreign currencies

The presentation currency is Euros (EUR). All transactions had functional currency other than euros tran&ated into eurosat the official Bank of Lithuania exchange rate on the date of the transaction, which approximates the prevailing marketrates. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the ratesprevailing at that date. Gains and losses arising on exchange are included in statement of profit (loss) and othercomprehensive income for the period.

Gain and losses due to exchange differences are recognised in statement of profit (loss) and other comprehensiveincome in the period in which they arise.

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3.20. Related parties

A related party is a person or company related with the company that prepares its financial statements.

A person or close member of the family is related to reporting company, if the person:• has control or common control of reporting company:• has a significant influence on the reporting company; or• is one of the key management personnel of reporting company or parent company.

The company is related to the reporting company ii they meet any of the conditions below:• The company and the reporting company are the members of the same group (it means that every parent.

subsidiary or sister company is affiliated with each other).• One company is in associate or joint activity with the other company (or an associate or joint activity with the other

member of the group, of which another company is a member).• Both companies are involved in the same third party joint activities.• One party is in joint activity with the third party and the other company is associated with third party. *

• The company is managing the retirement benefits plan for the benefit of employees of reporting company orcompany that is related with reporting company. lithe reporting company is the manager of this plan, the financingemployers are also related with reporting company.

• The company is controlled or jointly controlled by the person related with reporting company.• A person or a close member of the family has a significant influence on the company or is one of the key

management personnel of reporting company (or its parent company).

3.21. Fair value evaluation

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction betweenmarket participants at the measurement date. The fair value measurement is based on the presumption that thetransaction to sell the asset or transfer the liability takes place either:

• In the principal market for the asset or liability, or• In the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible to the Company.The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricingthe asset or liability, assuming that market participants act in their economic best interesL

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economicbenefits by using the asset in its highest and best use or by selling it to another market participant that would use theasset in its highest and best use.

The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data areavailable to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservableinputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized withinthe fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair valuemeasurement as a whole:

• Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities;• Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is

directly or indirectly observable;• Level 3—Valuation techniques for which the lowest level input that is significant to the fair value measurement is

unobservable.

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company determinewhether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowestlevel input that is significant to the fair value measurement as a whole) at the end of each reporting period.

Valuations are performed by the Company’s management at each reporting date, For the purpose of fair valuedisclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics andrisks of asset or liability and the level of the fair value hierarchy as explained above.

3.22. Offsetting and comparative figures

Financial assets and liabilities are offset and the net amount is shown in the balance sheet when it is eligible to set offthe recognized amounts and when there is an intention to settle the net amount or to realize assets and liabilities

22



simultaneously. Such right does not depend on future events and is legally implemented by the entity and allcounterparties both in normal operating conditions as well as the default, insolvency or bankruptcy.

Where needed, comparative figures were adjusted to reflect changes in the presentation of the current year.

3.23. Regulated activity

The Company’s profitability of regulated services is regulated by the State Prices and Energy Control Commission(VKEKK) by approved methodology for drinking water supply and waste water services pricing. Until 30 September 2017valid prices were set based on valid prior year version of Price setting Methodology. Since 1 October 2017 prices wereset according to the new methodology, which was valid at the time and included necessary costs and normative profit.Necessary costs are determined based on the actual costs of the basic year, long-term operating and development planand other reasons influencing change in the level of service and costs, and water suppliers benchmarking indicators.According to the new Price setting Methodology, base prices will be recalculated in 2018, including efficiency coefficient,sold services amount, completed investments, electricity, heat, technological materials price, taxes tariffs, changes insalary, actual return of investment and also other factors that do not depend on the Company. -

The Company does not recognize assets and liabilities of the regulated activity, which purpose would be to equalizecurrent year profit till regulated level, if this difference will be recovered! returned through the provision of services in thefuture.

3.24. Significant accounting judgments, estimates and assumptions

The preparation of the financial statements requires management of the Company to make judgments, estimates andassumptions that affects the reported amounts of revenues, expenses, assets and liabilities and disclosure of contingentliabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomesthat could require a material adjustment to the carrying amount of the asset or liability affected in the future. The significantareas of estimation used in the preparation of these financial statements are discussed below.

Useful life of property, plant and equipment

The key assumptions concerning determination the useful life of property, plant and equipment are as follows: expectedusage of the asset, expected physical wear and tear, technical or commercial obsolescence arising from changes orimprovements in the services, legal or similar limits on the use of the asset, such as the expiry dates of related leases.

In 2017 property, plant and equipment and depreciation and amortization expenses decreased by EUR 2.5 million, downto EUR 5.1 million, compared to expenses, which were in 2016— EUR 7.6 million. Such change occurred due to reviewedand updated non-current asset useful life periods starting from 1 January 2017.

Accrued income

In order to fully account for revenue for provided services as at 31 December the Company has accrued income for lastmonth of the financial year, for which water supply! wastewater treatment services were provided to consumers, thoughthey will pay for these services during January of the next financial year. Accrual of income for December of the financialyear was estimated for accounting purposes for the first time in 2016.

Accounted income based on average

The Company provides services to natural and legal persons/customers uninterruptedly, regardless of whether theydeclare readings or not. In order to represent the Companys revenue as accurately as possible for the services providedand the water consumed, an average consumption for the last 12 months of water and sewage is applied for thecustomers that do not declare meter-reading results for the ongoing month.

23



Impairment loss of accounts receivable

The Company accounts for allowances for doubtful accounts receivable. Significant judgment is used to estimate doubtfulaccounts. In estimating doubtful accounts historical and anticipated customer pedoimance are considered. Percentagecan be changed if the data of new analysis shows significant changes.

For the purpose of the estimation of doubtful accounts receivable from entities the individual debts are grouped byoverdue period and based on past experience, the following percentages are applied in the calculation of impairment:

Limitation Allowance, %Less than 3 months 0%

4-6 months 50%More than 6 months 100%

For amounts due less than 3 months allowance is not formed due to the fact that it is a period during which it is mostlikely to recover the debt. For debts due from 4 till 6 months the Company is carrying out actions to terminate the provisionof services and judicial processes are initiated. For debts due more than 7 months legal proceeding are completed andthe Company is stalling to work with bailiffs.

Doubtful debts of natural persons are subject for following percentages in the calculation of impairment:

Limitation Allowance, %Less than 5 months 0%

6-11 months 50%More than 11 months 80%

Up to 5 months allowance is not formed as it is a period! during which debts are usually recovered. For debts due from6 till 11 months the Company is carrying out actions to terminate the provision of services and judicial processes areinitiated. For debts due more than 12 months legal proceeding are completed and the Company is stalling to work withbailiffs.

By separate decision of the Company’s management an individual assessment of the impairment of the debt may beapplied for individual customers. Debt of Vilniaus Energija UAB was assessed individually. As at 31 December 2016 forthe trade receivable from Vilniaus Energija UAB which was already past due, eliminated subsequent payments receivedin January 2017 and evaluation a tripartite agreement on Subrogation and offsetting among Vilnius city municipality,Vilniaus energija UAB and the Company which was signed as at 29 December 2016, 100% allowance was formed (EUR4.555 thousand) because according to the Company’s management assessment, it was high possibility at that time thatthis amount may not be recovered.

During the 2017 the allowance for trade receivable from Vilniaus Energija UAB was reversed, as the Company has madea tripartite agreement with Vilniaus Energija UAB and Vilnius city municipality for subrogation and debts offsetting (Note13). Starting from 30 March 2017 Vilniaus silumos tinklai AB has taken over heating and hot water provision servicesfrom Vilniaus Energija UAB.

Deferred tax assets

Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will beavailable against which the losses can be utilized.

Significant management judgment is required to determine the amount ol deferred tax assets that can be recognised,based upon the likely timing and level of future taxable profits together with future tax planning strategies.

Impairment of property, plant and equipment

The Company makes an assessment, at least annually, whether there are any indications of impairment of property,plant and equipment, and construction in progress. If that is the case, the Company makes an impairment test. Therecoverable amount of cash-generating units is determined based on value in use calculations that use a discountedcash flow model. The cash flows are derived from the forecast for the next five years and steady growth of terminal value(1,5%), and do not include restructuring activities that the Company is not yet committed to or significant futureinvestments that will enhance the asset base of the cash-generating unit being tested.

Based on impairment test of property, plant and equipment, no impairment was accounted for property, plant andequipment as at 31 December 2017 and 2016.

24



Below presented key assumptions that were applied by the management for the budget and long-term planning, andrespectively the impairment assessment:

— 824% (8,09% as at 31 December2016) WACC discount rate (pre-tax) is applied in the impairment evaluation model.

— Average WACC of the market used by the management is higher than the one approved by the State Price andEnergy Commission. Management believes that in the long-term (starting from the year 2023), it is reasonable toexpect that return on investment set by regulator (as well as profitability of the Company) will exceed the currentlyset regulated level (4,7%) and converge to the market level,

— During the period of 2018—2022 capital investments to property, plant and equipment will consist of EUR 62.308thousand in total.

The impairment assessment at this stage is highly dependent on the assumptions used in the model. Below is providedsensitivityanalysis for key assumptions of impairment assessment as at 31 December 2017 and 2016:

- The increase in the discount rate in the years 2018 and onwards by 0.5 percentage point would result in animpairment in the amount of EUR 1.841 thousand;

- Additional annual investment in non-current assets amounting to EUR 1.000 thousand in the years 2018 andonwards would result in an impairment in the amount of EUR 5.450 thousand.

3.25. Subsequent events

Subsequent events that provide additional information about the Company’s position at the statement of financial positiondate (adjusting events) are reflected in the financial statements. Subsequent events that are not adjusting events aredisclosed in the notes when material.

25

Income for commercial work and servicesGain (loss) from sales of property, plant and equipment, netGain from sales of inventories, netIncome due to assets received from third partiesOther incomeTotal

The Company’s premises located in Dominikonai Street of Vilnius Old Town, which were accounted as non-current assetheld for sale as at 31 December 2016, was sold at a public auction. It was acquired for initial price of EUR 3.9 million (VATexcluded) by Asgaard Property in the auction held at the Vilnius City Municipality as at 21 February 2017. The net profitfrom disposal of the premises was EUR 1,285 million.

Income from the property received free of charge in 2017 and 2016 is based on the average market value of theconstructors cost of newly built networks which are registered in the name of Company, which is determined on the basisof the real estate register data.

6. Payroll and other related expenses

01/01/201631/1212016

9.390(76)

2.913


4. Sales income

01/01/2017 01/01/201631/1212017 31/1212016

Services rendered (water supply, wastewater treatment) 36.426 36.408Selling fee (subscriber fee) 3.162 3.183Drainage 292 315Total 39.880 39.906

100% of the Company’s income was earned in the Republic of Lithuania.

5. Other income

01/01/2017 01/01/201631/12/2017 31/12/2016

1981.285

16373

163

359- 4

1.872 527

01/01//201731/1 212017

Payroll 7.951

Change in vacation reserve 206

Social security expenses 2.469

Guarantee fund taxes - 18

Change in accrued liabilities to employees 85 172

Total 10.711 12.417

7. Repairs and technical maintenance expenses

01!01//2017 01/01/201631112/2017 31/12)2016

Technological materials 473 360

Exploitation materials expenses 361 492

System diagnostics and repair works 123 216

System cleaning 130 396

Digging recovery 410 291

Equipmentmaintenance 1.749 2.110

Repair of tools and equipment 22 40

Repair of construction 96 9

Laboratory services (monitoring) 36 37

Topo geodesic photos and legal registration 63 148

Total 3.463 4.099

26


8. Other expenses

01/01112017 011011201631/12)2017 31/12)2016

Customer service expenses 549 428

Heating 206 284

Rent of collectors 174 174

Work safety and special clothes 133 100

Insurance 112 136

Premises cleaning 1 10 67

Trash removal 106 74

Doubtful debts write-off 86 1

Security 76 68

Audit 54 42

Trainings 56 26

Promotion and commerce 48 29

Consultations 40 -

Household-economic expenses 19 25

Office administration expenses 18 11

Representative expenses 8 8

Change in inventory allowance (139) 45

Other expenses 122 848

Total: 1.778 2.366

9. Financial income and expenses

01/01//2017 01/01/201631/1212017 3111212016

Financial income

Interest income 495 LiiiReceived late payments and penalties 804 1.204

Total 1.299 2.315

Financial expensesInterest (expenses) (224) (567)(Paid) late payments and penalties (96) 1

Total (320) (566)

Financial activities net result 979 1.749

Increase in financial income was influenced by the late payments and penalties paid by Vilniaus Energija UAB in 2017— EUR 1.024 thousand, in 2016— EUR 2.226 thousand.

27


10. Income tax expenses

Income tax expenses (benefit) calculation is prepared based on income tax expenses, calculated at statutory income taxrate:

Profit (loss) before income tax 18.115

Income tax expenses calculated at statutory tax rate 2.717

Expenses not deductible tor income tax 166

Non-taxable income (236)

(17) (93)

Previously unrecognised tax loss utilisation - (216)

Correction of prior periods income tax (253)

Previously unrecognised deferred income tax asset recognitionIncome tax expenses recorded in statemept of profit (loss) and othercomprehensive income

(72) (2.444)

2305 . 334

Income tax expenses (benefit) are as follows:

01/01112017 01/01/201631/1212017 31/12/2016

Income tax expensesCurrent income tax 1.594 954Deterred income tax expenses (benefit) 711 (620)

tax expenses recorded in statement of comprehensive2.305 334

Change in deferred tax asset during 2017 and 2016:

Income tax Income taxBalance as at (expenses)

Balance as (expenses) Balance as

1 January benefit benefit. December . December2016 accounted in 2016 accounted in 2017profit (loss) profit (loss)

Accumulated tax losses 216 (216) - - -

Accrual for vacation reserve 81 (11) 70 31 101

eJent for accounts 2.756 (1.886) 870 (703) 167

Impairment of securities - 4 4 (4) -

Non-current employee benefits 95 26 121 13 134Impairment for inventories 17 6 23 (21) 2Provisions accrued for boreholes

1 - 1 - 1liquidationProvisions for cadastralmeasurement and cases - 8 8 (3) 5recordingInvestment incentive for tangible

(897) 28 (869) 27 (842)

Income accrual (50) 1 (49) 49 -

Differences of property, plant andequipment financial and tax - - - (100) (100)depreciationTotal 2.219 (2.040) 179 (711) (532)

Less: valuation allowance (2.660) 2.660 - - -

Deferred tax, net (441) 620 179 (711) (532)

As at 31 December2017 the deferred tax asset is recognized in the statement of financial position to the extent that theCompany’s management believes that it will be realized in the near future, based on taxable profit.

The Company is deferred income tax asset and liability were estimated at 15%

28

Tax incentive

01I01/1201731/12/2017

01/01/201631/12)2016

20.267

3.040

229

(182)

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29

Vilniaus vandenys, UAB, company code 120545849, Dominikon Str. 11, Vilnius, Lithuania

COMPANY’S FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 2016(all amounts are in thousand EUR unless otherwise stated)

11. Property, plant and equipment (continued)

As at 31 December 2017 property, plant and equipment cost was reduced by received grants, related to the assets, whichcost was EUR 128.774 thousand (2016 year— EUR 128.619 thousand), and net book value of such assets - EUR 98.718thousand (EUR 103.097 thousand as at 31 December 2016).

The grants consists of financing received from Structural Funds of the European Union for the development ofinfrastructure. In 2017 the amount of grants received was EUR 128 thousand (EUR 1.940 thousand in 2016). In 2017grants depreciation expenses were EUR 4.507 thousand (as at 31 December 2016— EUR 7.527 thousand).

As at 31 December 2017 property, plant and equipment of the Company with net book valuet of EUR 7.421 thousand(EUR 12.034 thousand as at 31 December 2016) was pledged to banks as a collateral for the loans (Note 18).

Property, plant and equipment of the Company with an acquisition cost’ of EUR 62M92 thousand were fully depreciatedas at 31 December 2017 (as at 31 December 2016— EUR 64.460 thousand) but were still in use.

As at 31 December 2017 property, plant and equipment of the Company with net book valuet of EUR 274 thousand duringinventory counting was identified as not used in Company’s activity (as at 31 December 2016-— EUR 285 thousand).

During the year 2017 and 2016 the Company did not include borrowing cost into the cost of property, plant and equipmentas the Company did not have assets, which would meet capitalization criteria.

As at 31 December 2017 the Company has 1,098 items of property, plant and equipment with the carrying amount of EUR14.651 thousand, which is inventoried, though not registered legally (as at 31 December 2016 — 1.176 items with thecarrying amounr of EUR 16.075 thousand). Also the Company has 367 items pf property, plant and equipment with thecarrying amountt of EUR 10.811 thousand, for which neither inventory count, nor legal registration was pedomied (as at31 December 2016—516 items with the carrying amount* of EUR 19.262 thousand). Such property, plant and equipmentis accounted for in accounts of tangible assets as the Company has all the material risks and rewards related to it.

- all total values are shown before offsetting with grants received.

New proiects

In December 2016 the new project “Drinking-water supply and waste treatment system renovation and development inVilnius City” agreement was signed (financed by EU structure funds). 22 objects will be accomplished until the end of theyear 2020, total project value — EUR 41 .914 thousand.

30

Vilniaus vandenys, UAB, company code 120545849, Dominikonq Str. ii, Vilnius, Lithuania

COMPANY’S FINANCIAL STATEMENTS FOR THE YEAR(all amounts are in thousand EUR unless otherwise stated)

12. Intangible assets

Acquisitions

Disposals and write-offs (-)Balance as at 31 December 2016

Balance as at 1 January 2017

Acquisitions

Reclassifications from UP

Write-offs (-)Balance as at 31 December 2017

Accumulated amortisation


Charge for the year

Write-otis ()Balance as at 31 December 2016


Charge for the year

Write-otis (-)Balance as at 31 December 2017

ENDED DECEMBER 2016

Net book value as at 31 December 232016Net book value as at 31 December 1992017

As at 31 December 2017 part of the non-current intangible assets of the Company with the acquisition value of EUR 1.056thousand was fully amortised (EUR 1.215 thousand as at 31 December 2016), but was still in use.

13. Trade and other receivables

201 7-1 2-31 201 6-1 2-31

Trade and other receivables non-current amountTrade receivables 5.600 -

Total: 5.600 -

2017-12-31 2016-12-31

Trade and other receivables current amount

Trade receivables 6.839

Other receivables

Less: allowance for doubtful receivables

Total

2 1

6.841 18.842

(1.112) (5.798)

5.729 13.044

Trade receivables are non-interest bearing and are generally settled on 30 days terms, if no separated arrangements forthe deferred payment exist.

Allowance of trade receivables is recognised when debtor is overdue to pay more than 3 months, it debtor is legal personor natural person who does individual activity, or more than 5 months, if debtor is natural person.

Software Unfinished projects Total

Balance as at 1 January 2016 1.349 - 1 .349

6 - 6

(35) - (35)

1.320 - 1.320

1.320 - 1.320

151 99 250

44 (44)

(245) - (245)

1.270 55 1.325

1.219 - 1.219

113 - 113

(35) - (35)

1.297 - 1.297

1.298 - 1.298

18 - 18

(245) - (245)

1.071 - 1.071

55

23

254

18.841

31

Vilniaus vandenys, UAB, company code 120545849, Dominikonij Str. 11, Vilnius, Lithuania


13. Trade and other receivables (continued)

As at 31 December2017 amount receivable from Vilnius city municipality amounted to EUR 7.466 thousand. This debtconstituted when the debt was transferred to Vilnius City the municipality as part of the debt of Vilniaus energija UAB underthe tripartite agreement on the transfer and settlement of claim rights between the Company, Vilniaus Energija UAB andVilnius City municipality. In the terms of the Tripartite Agreement, the repayment of debt (with interest) is scheduled ininstallments up to the year 2021. Therefore as at 31 December 2017 EUR 5600 thousand is classified as non-currentreceivables.

As at 31 December 2016 trade receivable from Vilniaus energija UAB amounted to EUR 14.163 thousand. The Company’smanagement implemented individual evaluation of the debt ol Vilniaus Energa UAB and recognised allowance in theamount of EUR 4.555 thousand as at 31 December 2016 (Note 324). In 2017 the allowance for Vilniaus Energija UABdebt was fully reversed, as the Company received part at the debt tram Vilniaus energija UAB and the other part of thedebt was taken over by Vilnius City municipality according to the tripartite agreement.

Change of allowance for accounts receivables from customers of the Cqmpany was as follows:

Opening balance

Charge for the yearReversalBad debts write-offClosing balance

31/12)2017

5.798

9(4.632)

(63)

31/12/2016

18.375

684(13.260)

(1)

During the years 2016 based on court decision Vilniaus Energija UAB repaid debt in the amount of EUR 10.828 thousand,for which allowance was formed.

In 2017 and 2016 the change of account receivables allowance is presented in the statement of profit (loss) and othercomprehensive income in separate line.

The ageing analysis of trade receivables of the Company as at 31 December 2017 was as follows:

Trade receivables Trade receivables past due but not impairedneither past due nor Less than 31 —90 91 —180 181-365 More than

impaired 30 days days days days 365 days Total

Vilnius City municipality 7.108 40 - - - - 7.148Natural persons 447 8 376 328 94 218 1.471Other legal entities 1.895 735 56 22 - - 2.708Total 9.450 763 432 350 94 218 11.327

The ageing analysis of trade receivables of the Company as at 31 December2016 was as follows:

Trade receivables Trade receivables past due but nDt impairedneither past due nor Less than 31 —90 91 —1801 81-365 More than

impaired 30 days days days days 365 days Total

Vilniaus Energija UAB 7.348 628 1.249 179 204 - 9.608Vilnius City municipality 740 12 - - - - 752Natural persons 441 1 363 183 138 229 1.355Other legal entities 1 .046 95 120 50 12 5 1.328Total 9.575 736 1.732 412 354 234 13.043

32

1112 5.798

Vilniaus vandenys, UAB, company code 120545849, Dominikong Str. 11, Vilnius, Lithuania


14. Prepayments, deferred expenses and accrued income

31/12)2017 31/12/2016

Deferred expenses 136 116Accrued income 268 322Accrued interest income 78 -

Prepayments received 3 4

Total 485 442

15. Cash and cash equivalents

31/12/2017 3111212016

Cash at bank - 12.390 19.013Cash in transit 193 338Cash on hand - 1Total 12.583 19.352

As at 31 December 2017 all the funds and future inflows that are in the OP Corporate bank plc Lietuvos filialas bankaccount were pledged to this bank.As at 31 December 2016 the Company’s all cash at bank accounts and future inflows are pledged to the banks, except forthe accounts, which are used for direct transfers of European Union targeted support

16. Share capital

During 2016 the Company’s share capital was increased by Vilnius district municipality property contribution in value ofEUR 634 thousand in September 2016. As at 31 December 2016 the share capital of the Company comprised of 3.874.137ordinary shares with par value of EUR 28.96 each. The Company’s share capital was increased by Vilnius City municipalityproperty contribution in value of EUR 469 thousand in September 2017. As at 31 December 2017 Vilnius City municipalityshares number for property contribution comprised of 16.189 units, the Company’s share capital comprised 3.890.326ordinary shares with par value of EUR 28,96.%

The share capital of the Company was fully paid as at 31 December 2017 and 2016. The Company did not hold its ownshares.

As at 27 July 2017 during the extraordinary shareholders meeting of Vilniaus vandenys UAB a decision was made toapprove interim dividends to the shareholders amounting to EUR 4 million for a four-month period ended on 30 April 2017(EUR 1.032488 dividends per share).

17. Reserves

Legal reserve

A Legal reserve is a compulsory reserve under the legislation of the Republic of Lithuania. Annual transfers of no less than5% of net profit are compulsory until the reserve reaches 10% of share capital. As at 31 December 2016 the compulsoryreserve was EUR 116 thousand and was not fully formed as the Company incurred losses in previous periods. In 2017,with a net profit for four months period, EUR 310 thousand were allocated to the compulsory reserve. As at 31 December2017 the compulsory reserve amounted to EUR 426 thousand.

18. Borrowings and financial lease obligations

31/12/2017 31/12/2016

Non-current borrowings and financial lease obligationsNon-current borrowings 2.141 21.163

2.141 21.183

Current borrowings and financial lease obligationsCurrent portion of non-current borrowings 857 1.708Obligations under finance leases - 13

857 1J21Total 2.998 22S04

33

Vilniaus vandenys, UAB, company code 120545849, Dominikonij Str. 11, Vilnius, Lithuania

COMPANY’S FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 2016(all amounts are in thousand FUR unless otherwise stated)

18. Borrowings and financial lease obligations (continued)

Non-current and current borrowings of the Company include:

PrincipalAverage amount ininterest Original original Maturity

Lender rate, % currency currency date 3111212017 3111212016

Nordic Investment Bank 1,34 Euro 10.300 13/09/2026 - 6.759Finance Ministry of 4 29 2 998 3 855Republic of Lithuania ‘ Euro 12.000 01/06/2021Finance Ministry of

3 94 - 2 277Republic of Lithuania ‘ Euro 2.453 15/03/2029OP Corporate bank plc

1 05 - 10 000branch of Lithuania ‘ Euro- 10.000 31/1212022

Total borrowings 2.998 22.891

Less: current portion (857) (1.708)

Non-current borrowings, net of current portion 2.141 21 .1 83

The terms of repayments of non-current and current borrowings are as follows:31/1212017 31/1212016

Within one year 857 1.708From one to five years 2.141 17.253After five years . 3.930Total 2.998 22.891

As at 31 December 2017 The Company’s property, plant and equipment with the carrying value of EUR 7.421 thousandwere pledged to banks as a collateral for the loan (as at 31 December 2016— EUR 12.034 thousand) (Note 11).

During 2017 the Company has repaid a loan to Finance Ministry of Republic of Lithuania in amount of EUR 2.277 thousand,North Investment Bank loan — EUR 6.759 thousand and OP Corporate bank plc Lietuvos filialas loan — EUR 10000thousand before their maturity.

As at 6 May 2016 the Company has signed overdraft agreement for 2 years with OP Corporate Bank plc Lietuvos filialas.The amount of overdraft is FUR 10.000 thousand and the maturity date is 6 May 2018. As at 31 December 2017 and 2016the overdraft was not used.

19. Finance lease obligations

In 2017 the Company has redeemed computers when the lease contract has ended.As at 31 December 2016 the book value of property acquired by financial lease was EUR 13 thousand.

20. Trade and other payables

31/12/2017 31/12/2016

Trade payables for services 1.088 1.470Trade payables for repairs and reconstruction 89 63Trade payables for constructions in progress 728 46Trade payables for financial projects 16 -

Trade payables for non-current assets 248 36Trade payables for inventories 338 132Total 2.507 1.747

34

• Vilniaus vandenys, UAB, company code 120545849, Dominikonq Str. 11, Vilnius, Lithuania

COMPANY’S FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 2016(all amounts are in thousand EUR unless otherwise slated)

21. Other current liabilities

31/12/2017 31/1212016

Taxes payable 1.627Accrual for vacation reserve 464Accrued current liabilities to employees 500Taxes, salaries and social security expenses 261 240Accrued expenses 216 191Other liabilities

_____________________________________

Total

__________________________________

Other payables are non-interest bearing.

22. Financial risk management objectives and policies

The Company’s principal financial liabilities comprise bank loans, advances received and trade payables. The mainpurpose of these financial liabilities is to raise finance for the Company’s operations. The Company has various financialassets such as trade and other receivables and cash, which arise directly from its operations.

The principal financial risks to which the Company is exposed are those of interest rate, liquidity and credit. The Company’smanagement reviews and agrees policies for managing each of these risks, which are summarised below. Due to the factthat liabilities of the Company are not affected by other currencies, thus risk of foreign exchange rates is not applicable.

Interest rate risk

At the end of the year 2017 the Company had a loan and a long-term receivable with fixed interest rate, therefore theCompany does not face the risk of interest rate fluctuations.

Part of the Company’s borrowings were with variable interest rates (Euribor) in 2016, therefore the Company faced aninterest rate risk. In 2017 and 2016 the Company has not entered into any interest rate swap agreements to managevariable rate risk.

The following table demonstrates the sensitivity to a reasonably possible change in interest rates in 2016 (increase anddecrease in basis points was determined based on Lithuanian economic environment and the Company’s historicalexperience), with all other variables held constant, of the Company’s profit before tax (through the impact on floating rateborrowings). There is no impact to the Company’s equity, other than impact on current year profit.

31/12/2016Effect on profit before

Increase! decrease in % tax

0,50EUR (0,10)

Liquidity risk

The Company’s policy is to maintain sufficient cash and cash equivalents or have available funding through an adequateamount of overdrafts and committed credit facilities to meet its commitments at a given date in accordance with its strategicplans. The Company’s liquidity (total current assets / total current liabilities) and quick ((total current assets - inventories)/ total current liabilities) ratios as at 31 December 2017 were 1,96 and 1,87, respectively (2,31 and 2,27 as at 31 December2016).

The management reviews the Company’s liquidity risks annually as part of the planning process and on ad hoc basis. Thereport considers projected cash flows from operations and allows for the management to effectively plan cash injection ifneeded. The Company monitors its risk to a shortage of funds using a standard monthly report on the cash flows with aliquidity projection for the future periods.

In 2017 the cash flow from operating activities was EUR 15.170 thousand (in 2016— EUR 23.717 thousand). The Companyhas managed to ensure its continuity — to cover obligations to suppliers, employees, pay taxes, etc. At the date of signingthese financial statements the Company’s operating cash flow is also positive.

1 .304670572

468 2643.491 3.286

EUR 84(17)

35

Vilniaus vandenys, UAB, company code 120545849, Dominikonq Str. 11, Vilnius, Lithuania


22. Financial risk management objectives and policies (continued)

Management believes that positive operating cash flows are sufficient to ensure adequate funding for the activities of theCompany and the Company will be able to continue to operate for at least 12 months after the signing date of thesefinancial statements.

The table below summarizes the maturity profile of the Company’s financial liabilities as at 31 December 2017 and 2016based on contractual undiscounted payments.

Interest bearing borrowingsTrade and other payables 2 2.505 -

Other liabilities

_________________________________________________________________________


Interest bearing borrowingsFinance leaseTrade and other payables

Other liabilities

_________________________________________________________________________


Foreign exchange riskAll sales and purchases transactions as well as the financial debt portfolio of thetherefore, the Company is not exposed to material foreign currency risk.

Credit riskTrade receivables are distributed among many customers, so credit risk is diversified. Credit risk, or the risk ofcounterparties defaulting, is controlled by the Company’s debt management department, using the control procedures.Due to the Company’s business specifics deposit or prepayment of the customers are not required.

In order to diversify the credit risk, the Company’s cash resources are held in a number of financial institutions, which orwhose parent companies have at least A by Fitch Ratings agency (or other equivalent rating agency) long-term debtcredit rating.

As at 31 December 2017 and 2016 the Company did not invest available funds into instruments of cash and securitiesmarket (deposits, bonds, government securities).

Fair value of financial instruments

The Company’s principal financial instruments not carried at fair value are trade and other receivables, trade and otherpayables, long-term and short-term borrowings.

Fair value is supported by quoted market prices, discounted cash flow models and options pricing models depending onthe circumstances.

The book value of the financial assets and financial liabilities of the Company as at 31 December 2017 and 2016 isapproximate to their fair value (3 level).

Fair value of borrowings was calculated by discounting the expected future cash flows at prevailing interest rates. Fairvalue of loans and other financial assets was calculated using the market interest rate.

The following methods and assumptions are used to estimate the fair value of each class of financial instruments:

(a) The carrying amount of current trade accounts receivable, current trade accounts payable and short-term borrowingsapproximates fair value due to their short maturities (3 level).

(b) The fair value of non-current receivables and debts is based on the quoted market price for the same or similar issuesor on the current rates available for debt with the same maturity profile, the fair value of non-current borrowings withvariable and fixed interest rates approximates their carrying amounts (3 level).

Less More3to12 lto5On demand than 3 than 5 Totalmonths yearsmonths years-

- 891 2.315 - 3.206

2.507- 45 esg 391 . - 1.075

2 2.550 L530 2.706 - 6.788

- 667 1.465 18.380 4.191 24.703- 7 6 - - 13

299 1.448 - - - L747- 34 421 102 - 557

299 2.156 t892 18.482 4.191 27.020

Company are denominated in EUR,

36


Financial assetsCash and cash equivalents 12.583 19.352Non-current receivables, trade and other receivables 11.329 13.044

Financial liabilitiesCarded at amortized cost 5.505 24.651

Capital management

The primary objective of the capital management is to ensure that the Company maintains a strong credit health andhealthy capital ratios in order to support its business and maximise shareholder value.

The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions. Tomaintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital toshareholders or issue new shares. No changes were made in the objectives, policies or processes during the year ended31 December2017 and 2016.

The Company is obligated to keep its equity ratio not less than 50% of its share capital, as imposed by the Law onCompanies of Republic of Lithuania, The Company meets the requirements of equity by the Law on Companies of Republicof Lithuania. There were no other externally imposed capital requirements on the Company.

The Company monitors capital using capital concentration ratio, which is calculated as ratio between equity and totalassets (after eliminating advances received) of the Company. Equity includes ordinary shares, reserves, retained earningsor accumulated losses. The Company’s management seeks the capital concentration ratio to be no lower than 40%:

Total assetsAdvances received

23. Related party transactions

31/12/2017 31/1212016

146.917(6.999

The parties are considered related when one party has the possibility to control the other one or have significant influenceover the other party in making financial and operating decisions.

The Company’s transactions with related parties in 2017 and related year-end balances were as follows:

Purchases Trade Trade and otherSales to from related receivables from payables to

related parties parties related parties related parties


22. Financial risk management objectives and policies (continued)

Categories of financiat instruments:

_______ -

31/12/2017 31/12/2016

Equity

Capital concentration ratio

135.45211.222)

134.230 139.918

121.993 109.714

90,88% 78,41%

6.562

Shareholders 557 1 7.149 1Entities controlled by shareholders 6005 391 1 .331Total

Since 30 March 2017 Vilniaus silumos tinklai AB has taken over heating and hot water provision services from VilniausEnergija UAB. In 2017 sales to Vilniaus ilumos tinklai AB accounted for EUR 5.041 thousand.

392 8.4809697

37



23. Related party transactions (continue)

The Company’s transactions with related parties in 2016 and related year-end balances were as follows:

Purchases Trade Trade and otherSales to from related receivables from payables to

related parties parties related parties related parties

Shareholders 640 635 756 5.647Entities controlled by shareholders 771 128 64 50Total 1.411 763 820 5.697

Under a tripartite agreement between the Company, Vilniaus Energija UAB and Vilnius city municipality, in December 2016the Vilnius city municipality paid EUR 5.647 thousand (accounted for as advances received), which in accordance with thetripartite agreement were offset against Vilniaus Energija UAB debt in February 2017, after the execution of obligationsstated irf the agreement.

The services provided to the shareholders and the entities controlled by the shareholders were executed at market prices.

As at 31 December 2016 the Company received 2 guarantees from Vilnius city municipality for the amount EUR 9.036thousand to secure obligations of the loan agreements. In 2017, after the loans were repaid to Finance Ministry of Republicof Lithuania and Nordic Investment Bank, guarantees were terminated.

24. Remuneration of the management and other payments

As at 31 December 2017 and 2016 the Company’s management team comprised 4 people.

0110112017 011011201631/12/2017 31/12/2016

Key management remuneration 268 172Social security 84 53Total 352 226

During the year 2017 Company’s management received payment in amount of EUR 9,78 thousand for rent of vehicles (in2016— EUR 6 thousand).

25. Non-cash transactions

01/0112017 01101/201631/1212017 31/12/2016

Property, plant and equipment received from the shareholders 469 634

Non-current assets received free of charge 373 358

26. Subsequent events

Subsequent information about legal procedures is presented in Note 27.

Increase of share capital

Share capital of the Company was increased by the property contribution made by Vilnius district municipality in amountof EUR 196 thousand and was registered in January 2018.

Loan received

As at 7 February 2018 the Company signed a loan agreement with Finance Ministry of Republic of Lithuania for amountEUR 20.000 thousand in order to finance the project “Renovation and Development of Drinking Water Supply and SewageCleaning System in Vilnius City’.

38


COMPANY’S FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 2016(all amounts are in thousand FUR unless otherwise stated)

27. Commitments and contingencies

Litigations

The Company has submitted claims to the following persons:

As at 20 July 2016 July Vilniaus vandenys UAB filed lawsuits in 3 cases with Vilniaus energija UAB, in respect of the debtfor drinking water supplied for the preparation of hot water. The total amount of claims was EUR 7.208.574:

The claim amount — EUR 1.052.769, the Case No. e2-5387-5801201 6. The claim was submitted as at 20 July 2016.The claim amount — FUR 4.368.841, the Case No. e2-5390-560/201 6. The claim was submitted as at 20 July 2016.The claim amount — EUR 1.786.964, the Case No. e2-5392-232J201 6. The claim was submitted as at 20 July 2016.

The courts of first instance satisfied the claims, but the defendant lodged appeals against Vilniaus energija UAB and thecases were further dealt with by the Lithuanian Court of Appeal.

In 2017 the Company has initiated 3 cases against Vilniaus energija UAB due to debt for drinking-water supplied forpreparation of hot water. Total amount of claims was EUR 3.663.416:

The claim amount — FUR 2.335.239, the Case No. e2-3750-803/2017. The claim was submitted as at 14 March 2017.The claim amount — EUR 564.278, the Case No. e2-3787-262/2017. The claim was submitted as at 17 March 2017.The claim amount — EUR 763.900, the Case No. e2-3788-803/2017. The claim was submitted as at 17 March 2017.

29 December, 2016 the Company entered into a trilateral agreement with Vilniaus energija UAB and the Vilnius CityMunicipality Administration regarding the transfer and assignment of claim rights, whereby the Company transferred toVilniaus city municipality administration a claim of FUR 5.646.806 to Vilniaus energija UAB, and the Vilnius City MunicipalityAdministration committed to transferable payment request. The requirement has passed to the Vilnius City MunicipalityAdministration in 28 February 2017 and payment was made by the Vilnius City Municipality Administration for thetransferable claim.

24 April2017 the Company concluded a trilateral agreement with Vilniaus energija UAG and the Vilnius City MunicipalityAdministration regarding the assignment and set-off of claims rights, in which the Company committed itself to transfer tothe Vilnius City Municipality Administration a claim of EUR 8.418.703 from Vilniaus energija UAB, and the Vilnius CityMunicipality Administration committed to transferable the requirement to pay by 31 December 2021 in equal parts everyquarter, starting payments from 31 March 2018.

After the agreements made on 29 December 2016 and 24 April2017, trilateral agreement with Vilniaus energija UAG andthe Vilnius City Municipality Administration regarding the transfer and assignment of claims rights, the Company signed apeace agreement and withdrew demands for the payment of debts from Vilniaus energija UAB for drinking water suppliedfor the preparation of hot water in 2016 and 2017 cases above, however, the Company, when claiming claims in connectionwith the debt repayment, also demanded the payment of interest and late payment for late settlement, therefore, after theconclusion of both tripartite agreements, the Company continued to file lawsuits against Vilniaus energija UAG for thepayment of interest and interest for late payment for the services rendered. Following the favorable decisions for VilniausVandenys UAB, Vilniaus Fnergija UAB paid interest and interest for interest for latency in 2017.

Persons, who have submitted claims against the Company:

• The District court of the Vilnius has examined civil case based on the claim of VITI AG-F against defendant LRAplinkos ministerijjos Aplinkos projektu valdymo agenturai ir Vilniaus vandenys UAB due to claim (21 November2014) No. (29-2-7)-APVA-1 928 to pay amount EUR 263.385 as a bank guarantee. This case was recognised asillegal and unreasonable

As at 25 January 2016 the claim of ‘VITI’ AG-F was partly upheld partly, adjudging from the Ministry of Environment,Environmental Project Management Agency in favor of AB-F VITI amount of FUR 263.385, 5% annual interest fromadjudged amount from the day of civil claim proceeding (as at 8 December 2014) up to complete implementation ofcourt decision and the amount EUR 2.844 for stamp-duty. The amount of losses EUR 34.863 was not adjudged.

As at 24 February 2016 the Company (defendant) has appealed. As at 27 October 2016 the Appellate court ofLithuania has made a decision in civil case under the claim of AB-F VITI against defendants the Ministry ofEnvironment, Environmental Project Management Agency and the Company due to claim No. (29.2-7)-APVA-1 928(as at 12 November 2014) to pay the amount of EUR 263.385 (LT 909.415) of recognition illegal of bank guaranteepay-out. The requirements of claimants were rejected. The claimant submitted the cassation complaint and it wasaccepted for hearing. On 16 June 2017 the appeal was inspected and dismissed, the decision remained unchanged.As at 31 December 2016 the Company has formed the provision in the amount of EUR 263.285, as at 2017 theprovision was fully reversed.

39

Vilniaus vandenys, UAB, company code 120545849, Dominikonq Sir. 11, Vilnius, Lithuania


27. Commitments and contingencies (continue)

• In the Districi court of Vilnius the claim of plaintiff AS Merko Ehitus is proceeding due to payment for addihonalexpenses, extension of expiry date, illegal accounting and usage of bank guarantee. The amount of claim: EUR60.200 for implemented additional works and EUR 93.491 as a suffered losses by plaintiff. As at 31 December2017and 2016 the Company has formed the provision in the amount of EUR 153.691.

• In the District court of Vilnius the case was proceeding, related to claim of the plaintiff Vilnista UAB, which is goingbankrupt, to adjudge illegally accounied prepayments and compensate losses. Total claim amount: EUR 451 .208 ofcompensation of losses. As at 30 November 2016 the court dismissed claim of plaintiff and made a decision in favorof the Company. On 29 September 2017 the appeal was rejected and initial decision remained valid. As at 31December 2016 the Company formed the provision in the amount of EUR 451 .206, as at 31 December 2017 theprovision was full reversed.

• In the District court of Vilnius district court cases are proceeding where Dalia Uzusiene, Jonas Uzusienis and otherssubmitted claim. The defendants: Gabijos Investicijos UAB, Vilnius city municipality and the Company due to damagecompensation (claim amount was not set) or determination of remuneration easement (claim amount was not set).

The ruling on the change of countries was adopted in the case, the ruling was appealed.

On 31 of July, 2017 the applicants filed a revised claim for the award of moral and non-material damages todefendants Vilnius City Municipality, the Republic of Lithuania and UAB Vilniaus vandenys, third parties interested inDalia Dubietytè-Uusienienê, Stanislava Paulikienê, Irena Mélinauskiené. On 13 February 2018 Vilnius CityAdministrative Court passed the decision to reject Jonas Uusytis’s complaint as unfounded. 31 December 2017 and31 December 2016 the provision was not formed due to the existing uncertainty surrounding the identification of theperpetrator and the assessment of the size of the claim.

• As at 5 July 2016 Apskaitos ir mokesciu konsultacijos UAB made a claim to the District court of Vilnius due to receivedadjudgement of debt of provided services, penalties for payment delay and compensation. Total amount of claim: EUR20.655. As at 13 November 2016 the court of first-instance partially satisfied the claim and adjudged from the CompanyEUR 5.492 of losses compensation and EUR 1.206 litigation expenses. As at 22 December 2016 plaintiff hasappealed. As at 31 December 2016 the Company formed provision in the amount of EUR 6.698. In 2017 the Companycovered losses incurred by UAB Apskaitos ir mokesOiq konsultacijos and reimbursed the costs. As at 31 December2017 this provision was fully reversed.

• As at 8 December 2016 AB Graztai submitted a claim against the Company related to recognition of the part ofagreement as not valid and the restitution application. Claim is amounted to EUR 40.631. First instance court satisfiedthe claim. The Company appealed. The appeal court has not made decision yet. As at 31 December 2017 and 2016provision was formed in the amount of EUR 40.631.

• As at 23 December 2016 on Upes str. approximately 30 thousand sq. meter of sewage drained away to Neris riverdue to an accident that occurred due to damage to pipe-lines. Pre-trial investigation was started. Preliminary damageto the environment was assessed in the amount of EUR 450 thousand, provision was not formed due to highuncertainty, related to identification of actual perpetrator and assessment of potential damage to the environment.

• 30 January 2015 the cellar of the National Cancer Institute located in Santariákiq g. 1, Vilnius. In the event of anaccident, the water supply networks are operated by UAB Vilniaus vandenys. 30 April2017 Gjensidige filed a lawsuitclaiming to be jointly and severally liable for UAB Vilniaus vandenys and InterRisk Vienna Insurance Group AAS EUR114.375. The hearing was scheduled for 6 February 2018. At 31 December 2017 the company formed a provision ofEUR 114.375 for this claim.

• On 19 May 2017 the Environmental Project Management Agency of the Ministry of Environment of the Republic ofLithuania informed the Company about investigations into suspected violations regarding the failure to achievemonitoring (result) indicators for 2007-2013 in the framework of projects financed by the European Union. The failureto achieve monitoring (result) indicators can correct the amount of eligible costs for projects from 5 to 20 percent,which is EUR 3.988.401 from the total funding amount. Minister of the Environment of the Republic of Lithuania passedorders No. D1-448; No. D1-497; No. D1-499 and orders no. D1-752; No. D1-739; No. D1-735 on the application offinancial corrections. UAB Vilniaus vandenys appealed against the aforementioned orders to the Vilnius RegionalAdministrative Court. All cases are still pending. The cases provided for in the trials are postponed, after suspensionof proceedings in connection with the possible conclusion of a settlement agreement. At the end of the hearing of thecases, according to the order, the amounts financed may be refunded and sources of financing redistributed, theprovision for adjusting the amounts financed is not accounted for due to the uncertain possible repayment amount.Also, the possible repayment would not affect the Company’s profit or loss as it would reduce the amount of the grantsreceivable.

• UAB Namq prie±iüros centras has filed a lawsuit against UAB Vilniaus vandenys for damages, the claim amountingto EUR 6.047. 31 December 2017 the Company formed a provision of EUR 6.047 for this claim, on 15 January 2018peace treaty was signed, on 5 February 2018 the Company covered losses of UAB Namq prie1iUros centras.

40



27. Commitments and contingencies (continue)

• In June 2017 when the water pumping station broke down in Upes str. 15 due to high mass of raindrops the sewage,sewage were released into the river Neris by emergency exhaust pipes. After an unplanned thematic inspection ofVilnius RAAD, an inspection act was drawn up to investigate and assess the circumstances of an accident. As at 31December 2017 RAAD investigation has not been completed yet. The Company acknowledges the fact of the damagedone to the environment and according to preliminary expert estimations a provision for the amount EUR 245.229 wasformed as at 31 December 2017.

The Company’s provisions for legal cases and other provisions are presented in the table below:

Accrued Used31/1212015 0110112017 01/01/2017 31/1212017

31/1212017 31/1212017

Provisions for trial claims 915 121 721 315

Provisions for environmental damage 245 - 245

Provisions accumulated for boring9 9 9liquidation

Provisions for cadaster measurement 53 37 55 35and cases registration

____________________________________________________________________

Total

Commitments under concluded contracts

977 412 785 604

As at 31 December 2017 the Company’s commitments according to the concluded contracts which are not yet recognizedin the financial statements amount to EUR 3.836 thousand. As at 31 December 2016 commitments amounted to EUR1.628 thousand.

Other oft-balance sheet commitments and uncertainties

As at 31 December 2017 and 2016 the Company has legally not registered assets (Note 11) and to the date of approvalof these financial statement the Company has not received any claims from the third parties. The Company bears all therisks and rewards related to these assets.

41

Vitniaus vandenus

AnnuaL report2017

MESSAGE FROM THE MANAGEMENT

Year 2017 was the year of significant challenges, works and major changes in Vilniaus Vandenys. Through jointefforts of a 5trong and motivated team, we have laid solid foundation for further growth and significant changesin the Company.

We undertook to implement the Company’s operating and development strategy for 2017-2019, which definesthe Company’s values, formulates its mission, vision, goals and strategic performance initiatives. We strive toemploy them to build value-based organizational culture, improve customer service quality, ensure data securityand interoperability of IT systems, attract more new customers, expand and upgrade networks, reduce their lossesand ensure a reliable infrastructure for providing quality services.

We started with ourselves by improving activity process management, implementing a motivating employeeperformance management system and a remuneration policy,.which is aimed at objectively and transparentlyremunerating employees for the results achieved, the value created for the organization and for customers, alsoencouraging and enabling them to pursue common goals.

Significant progress and leap in quality was achieved in another priority area - improving customer service quality.A customer satisfaction survey was carried out, a customer service standard was approved, also creating a modernself-service portal and taking first steps in moving customer service to the electronic environment.

We started implementing IT projects in the development of asset management and customer billing systems andimproving the geographical information system (GIS), which will enable the Company to use the funds even moreefficiently and to ensure the reliability of its infrastructure.

We are pleased that having increased the efficiency of operations, we managed to reduce prices of basic drinkingwater supply and wastewater treatment services for consumers by about a fifth, at the same time ensuring astable income for the Company.

These successful performance results have earned us the title of the Service Sector Leader in the election of theLithuanian Business Leaders held by Verslo inios.

In 2018, we will face even more challenges: we will strive to provide our customers with even better services, toattract as many new customers as possible and to implement the planned investment projects.

I have no doubt that we will implement ambitious goals and become a desirable employer, service provider andpartner by 2019, as planned. Please feel free to get familiar with our performance results presented in this reportfor 2017 in greater detail.

Best regards,

Virgilijus ukauskas

Acting CEO

ABOUT THE COMPANY

Vilniaus Vandenys is the large5t Lithuanian water management enterprise that in engaged in drinking water supplyand wastewater management for about 250 thousand customers. The Company holds a drinking water supplyand wastewater management licence issued by the National Commission for Energy Control and Prices (NCC) andoperates in Vilnius City Municipality as well as Vilnius, venionys and alininkai district municipalities. TheCompany has no branches or representative offices.

The Company supplies groundwater only, from 40-180 meter-deep wells. Vilniaus Vandenys suppliesapproximately 88 thousand cubic meters of water, collects and treats more than 114 thousand cubic meters ofwastewater per day.

Considering the fact that the Company is engaged in the provision of strategically important public services, theprovision of the services and environmental protection is subject to large-scope legal regulation. The Companyfollows requirements of ISO 9001 and ISO 14001 stancards in its activities.

MAIN SERVICES

SUPPLY OF DRINKING WATER

Vilniaus Vandenys operates 34 wellfields, 275 wells that can be operated, 147 water pumping stations, 1684 kmwater supply pipelines, 19 water improvement plants, 509 water abstraction columns and 4837 fire hydrants.

In 2017, the Company abstracted 32.4 million m3 of drinking water (which is 0.4 million m3 more compared to2016), including 31.6 million m3 from Vilnius city wells, 0.4 million m3 from venionys district wells, 0.3 millionm3 from alâninkai district wells and 0.2 million m3 from Vilnius district wells.

The Company supplies drinking water from deep wells only. Such water is considered top quality. However,natural water always contains dissolved impurities. High levels of iron and manganese are typical of groundwaterin Vilnius and Vilnius district. Excess iron and manganese are removed by treating water in water improvementplants used to clean 87 percent of water supplied by the Company.

The Lithuanian Hygiene Norm HN24: 2017 lays down the requirements for safety and quality of drinking water.According to these requirements, and in order to ensure the quality of supplied water, the Company performsregular monitoring of the quality of drinking water and carries out tests thereof. Samples for the tests are takenfrom the distribution network and consumption points. Laboratory tests of the quality of drinking water arecarried out in accordance with the programme supervision plan drafted each year and approved with the StateFood and Veterinary Services, and considering customer needs. In 2017, a total of 8.7 thousand tests were carriedout in the Company’s laboratory, which is 3 percent more than in 2016. About 50 water quality indicators weretested, and the absolute majority of them fully met the Hygiene Norm requirements.

The majority of the water supply networks was built in connection with the city expansion, thus it is decades old.Due to the long term of operation, pipelines in certain parts of the city are obsolete, thus resulting in occasionalwater leaks or accidents. In 2017, the Company liquidated 710 water supply accidents* (compared to 1141 in2016).

The term “accident” used in the company’s report corresponds to the definition of an accident in water supply and sewage treatmentfacilities used in the Description of the Procedure for Removing Accidents and Breakdowns approved by Vilniaus Vandenys in 2017according to the recommendation by the Lithuanian Water Suppliers Association. Accident shall mean an unforeseen event havingformedas a result of a fault in water management infrastructure, technological process damage or other unforeseen technical circumstances,which may lead to disrupted service provision to the customer, pose threat to human health or life, result in another adverseenvironmental impact or a threat to public and private property.

In 2017, the Company renovated sections of water supply pipelines in emergency state located in collectors ofVilnius city heat networks covering 1.85 km, and 0.8 km of underground water supply networks. The Companyalso invested in renovation of equipment of wellfields and wells, new wells, restoration of water supply networksand wells, replacement of reinforcement and fire hydrants.

Wear and tear of the network (more than 60 percent of water supply and wastewater network is more than 30years old) and soil movement are most frequent reasons of accidents. In previous years, the development of newnetworks from European Union structural funds was a priority, thus only the sections of water supply pipelineswith highest accident concentration were renovated.

In 2017, the Company approved the Methodology for Rating Objects of Reconstruction of Water Supply,Wastewater Networks and Stations for identifying priority objects for reconstructing water supply andwastewater networks considering the condition and importance of objectively assessed objects. Having identifiedthe priorities, the investment plan for 2018-2020 was drafted for renovating networks from the Company’s funds.

WASTE COLLECTION AND MANAGEMENT

For the collection of wastewater and its transportation to the wastewater treatment facilities, Vilniaus Vandenysuses 1335km wastewater networks and collectors, including 166 km pressure lines and 183 wastewater-pumpingstations. The Company operates 8 wastewater treatment plants: Vilnius city, venëionys, venioneIiai, Pabrade,Nemeninê, Gela, alëininkai and Eiikes. The Company also accepts and manages wastewater collected bycompanies transporting wastewater.

The Wastewater Management Regulation and pollution integrated prevention and control permits issued to theCompany regulate wastewater management. The Company’s laboratory examines about 30 wastewater qualityindicators.

Tests of quality of wastewater inflows and treated outflows are performed in observance of environmentalmonitoring programmes providing for the plans of monitoring of pollutants released with wastewater and plansof monitoring of the impact on water quality approved with the Environmental Protection Agency (setting theparameters to be tested, points, frequency of measurement and methods of measurement).

In 2017, Vilniaus Vandenys treated 41.6 million m3 of wastewater, which was 8 percent more than in 2016,including 39.13 million m3 of wastewater treated in the treatment plant of Vilnius city, accounting for 94.1 percentof the total treated wastewater amount, 1.12 million m3 - in venionys district, 0.8 million m3 - in al&ninkaidistrict and 0.53 million m3 - in Vilnius district treatment plant.

In terms of the key examined indicators (biochemical oxygen consumption in seven days (BDD7), the totalphosphorus and the total nitrogen content), high treatment efficiency levels are reached in the Vilnius wastewatertreatment plant, which consistently increased in 2017 compared to 2016.

The company faces challenges over the total nitrogen concentration in treated wastewater, but the situation isunder control. In 2017, the Company paid 19.1 percent less for pollution compared to 2016. In order to betterprotect the environment from pollution from economic activities and to maintain high quality of treatedwastewater, the reconstruction of the Vilnius waste water treatment plant was started (announcing a publicprocurement procedure therefor).

In 2017, there were 477 accidents in wastewater networks (2 252 - in 2016). Accidents and breakdowns inwastewater networks were mainly caused by obsolescence of pipelines and blockage of pipes. A mixedwastewater drainage system is installed in Vilnius city centre, the Old Town, a part of Antakalnis and Naujamiestiswhere both wastewater and rainwater is collected. These wastewater networks accumulate sediment and siltcausing frequent blockages. The Company’s wastewater operation and accident liquidation units focus not onlyon the liquidation of such accidents and breakdowns but also on their prevention. In 2017, 47 points ofwastewater networks with highest accident concentration were repaired (having replaced about 3 km of

pipelines) and 71 km of wastewater networks were washed (cleaned) (including 1.8 wastewater collectors). The

plan is to continue the routine prevention wastewater washes and to invest in renovation of wastewater networks

in 2018.

PERFORMANCE AND FINANCIAL INDICATORS

SCOPES OF SERVICE PROVISION

The dynamics of the volume of sales of drinking water and wastewater treatment services best reflects the

changes in the Company’s operating volumes that affect the income. The key performance indicators - the volume

of drinking water sold and the volume of collected and treated wastewater - in the areas of activities of Vilniaus

Vandenys increased by 3-4 percent in 2017 compared to 2016. Such re5ults were determined by active work in

checking readings of water meters of natural persons, strengthening customer service, informing about payments

and other active actions. Forecasts of the results for 2018 reveal the expected further increase in the volume of

sold drinking water and collected and treated wastewater by 3 percent.

Change in 2016 - 2017Performance indicators 2017 2016 thousand

m3percent

Drinking water sales, thousand m’ 27 043 26 155 888 3%

To natural persons (consumption), thousand m3 13 403 12 391 1 012 8%

To legal persons (subscribers), thousand m’ 13 640 13 764 -123 -1%

Wastewater treatment service sales, thousand m3 28 731 27 510 1 221 4%

To natural persons (consumption), thousand m 13 059 12 023 1 036 9%

To legal persons (subscribers), thousand m3 15 672 15 487 185 1%

In 2017, the Company abstracted 32.4 million m3 of drinking water. The differences between the amount ofdrinking water supplied to the pipelines and the drinking water sales occur for technical reasons (leakages andaccidents), but incorrect declaration of client meter readings plays an important role as well. The Company treatsmore wastewater than sells wastewater treatment services mainly due to rainwater infiltration in the wastewatercollection system. 41.6 million m3 of treated wastewater was accounted for in wastewater treatment plans, whileonly 28.7 million m3 of wastewater treatment services were sold.

The diagram below shows the total service provision scope (in thousand m3) with respect to drinking waterlosses * and wastewater infiltration.

Water losses means a difference between the volume of drinking water supplied to pipelines and the volume of drinking water sold;infiltration means a difference between the volume of water treated in treatment plants and the amount of sold wastewater treatmentservices.

40

5.84

13.76 15.67

13.06

2017

Li2016

• Drnking water sold to natorai persons

• Vdastewater treatment services sold to naturalpersons

• Drinkng water sold to legal entities

• Wastewater treatment services sold In legal enrlt!es

Water tosses (loss of income)

Wtstcva!cr infi(tratlnn (loss of income)

INCOME FROM THE SALE OF SERVICES

Principal (sales) income generated by Vilniaus Vandenys comprises income earned from the provision of servicesof drinking water supply and wastewater treatment. The Company earned EUR 39.9 million from sold services in2017. Compared to 2016, sales income decreased by a mere EUR 0.026 million in 2017 despite by about a fifthlower service prices that took effect in October. Active work with customers administering consumption volumes,more stringent wastewater pollution control and more services provided to customers allowed retaining steadysales income.

Income from wastewatermanagement (subscriber

Income from wastewatermanagement(consumers)

22%

Income from salesadministration(subscribers)

3%

Income from thesupply of drinkingwater (consumers)

19%

12.8535

30 5.3625

20 13.64

Is

IC

5

0

11.03

15.49

2017 2016

Other income

4%Income from sales

administration(consumers)

5%

Income from thesuppI of drinkingwater (subscribers)

20%

Sales income from business customers* account5 for about 50 percent of the Company’s income, income from

private customers**— for 46 percent and other income — for 4 percent. income from the largest hot water

suppliers (Vilniaus Energija / Vilniaus ilumos Tinklai) accounts for 35 percent of income from business customers.

. Change in 2016-2017Sales income 2017 2016

thousand EUR percent

SALES INCOME 39 880 39 906 -26 -0,1%

Income from sales administration (price) 3 162 3 184 -22 -0,7%

Income from the supply of drinking water, including: 16 318 16 336 -18 -0,1%

Income from private customers (consumers) 8 096 7 760 336 4,3%

Income from business customers (subscribers) 8 222 8 576 -354 -4,1%

Income from centralised wastewater management including: 20 453 20 398 55 0,3%

Income from private customers (consumers) 9 197 9 054 143 1,6%

Income from business customers (subscribers) 9 995 10 530 -535 -5,1%

Income from business customers (subscribers) for increased pollution 1 261 814 447 549%

Change in income accruals j_-54 -12 -42 350%

*The term “business customer” used in the company’s annual report corresponds to the term “subscribers” used in the Law onDrinking Water Supply and Wastewater Management of the Republic of Lithuania.

Subscriber is a natural or legal person, a branch of a foreign legal entity or another organization established in the Republic of Lithuaniapurchasing the services of the supply of drinking water and/or wastewater management for business needs or carrying out economicactivities and having concluded a public contract on the supply of drinking water and/or wastewater management with a drinking watersupplier, wastewater manager and/or surface wastewater manager or, if a contract has not been concluded, having connected inaccordance with the procedure prescribed by laws his drinking water supply and/or wastewater drainage facilities, drinking water usageand/orwastewater treatment plants owned by the right of ownership or general shared ownershiptothe drinking watersupplier and/orwastewater management infrastructure owned by the drinking water supplier and/or wastewater manager by the right of ownershipor managed and/or used otherwise, or draining surface wastewater to surface wastewater management systems of managers of suchwastewater.

**The term “private customers” used in the company’s annual report corresponds to the term “consumers” used in the Law onDrinking Water Supply and Wastewater Management of the Republic of Lithuania.

consumer is a natural person purchasing drinking water supply and/or wastewater management services for personal, family orhousehold needs rather than for business, who has concluded a public contract on the supply of drinking water and/or wastewatermanagement or, if a contract has not been concluded, having connected in accordance with the procedure prescribed by laws hisdrinking water supply and/or wastewater drainage facilities, drinking water usage and/or wastewater treatment plants owned by theright of ownership or general shared ownership to drinking water supply and/or wastewater management infrastructure owned by thedrinking water supplier and/or wastewater manager by the right of ownership or managed and/or used otherwise.

In 2017, the Company’s income grew from EUR 40.4 to 41.8 million. The growth of income was mainly affectedby the growth of other income from EUR 0.5 million in 2016 to EUR 1.9 million in 2017. Thi5 income included netprofit of EUR 1 285 thousand from the disposal of non-current assets of the Company in Dominikonq St. in Vilniusand income from assets received free of charge from third persons, which totalled about EUR 373 000. In 2017,the income from assets received free of charge comprised the average market value of networks reconstructedfrom the funds of real estate builders and of newly built networks registered in the Company’s name, which wasdetermined according to statements of the central data bank of the Real Estate Register.

Income from the sale of water and wastewater in 2017 (thousand EUR)

F1 581 r ‘ 761

723 r726j644

716 735 Sb425 p.

Jjne Ii j Ajgrt c’timb’ Octabc’

Income from different activities remained stable in 2017 compared to 2016. Income from wastewatermanagement slightly increased (EUR 55 000), while income from drinking water supply slightly decreased (- EUR18000). Respectively, income from the supply of drinking water accounted for 39 percent in the income structure,income from wastewater management — for 49 percent and income from the selling fee — for 8 percent of theCompany’s income.

OPERATING EXPENSES

In carrying out control of operating expenses, the Company analyses a part of its operating expenses (OPEX).Taking into account the fact that this part (OPEX) is distinguished for management reporting purposes, due todifferent classification of expenses, the amounts of some expenses may differ from the figures disclosed in thefinancial statements.

OPEX means operating expenses except for depreciation and amortization, asset impairment and write-offexpenses. In 2017, OPEX were EUR 24.1 and in 2016- EUR 26.7 million.

3ttd

1,0012t3 944

I981 1,022

1,178984 964 1,062

761

ISCD

1(t) 747 720

IM3rcbFebruary

923876

66

599

aNs:rnber December

• Income 1ro:n the suaD a’ drnu ng water (consume si

• Income from. wastcwjtcr rn]nagemoit (consumers)• nrcrnc fram tie supply of (irikig water lSu)rScr cc’s)

• Income from wastewater managcm en! Csubscr,bcrs)

2017 operating cost structure

In 2017, payroll and related tax expenses made up the major share of OPEX accounting for 44 percent of the totalOPEX. Payroll and related tax expenses totalled 10.7 million in 2017, and decreased by EUR 1.7 million comparedto 2016, when they were EUR 12.4 million. Structural changes in the Company in 2016, when the number ofemployees was reduced and the dismissed employees were paid severance pay, contributed the most to thisdecrease.

In order to disclose OPEX in greater detail, technological expenses (or expenses for technological needs) weredistinguished. These expenses are related to technological - production processes that take place in the Company,namely, the operation of facilities and pipelines and the management of sludge.

Tax expenses

10%L

Administrativeexpenses

3%Telecommunicationand IT expenses

3%Transport expenses

3%Customer service expenses

3%

Technological expenses

22%

ParolI andrelated taxes

44%

Electric itg

12%

OPEX in 2017 (thousand EUR)

12417

Electricitcj

Service of equipment 200

Sludge management 232

3 Operating materials

Z Technological materials

iii Rebuilding excavated earthH 292

Works of network cleaning, diagncsbcsand re pair

Other technological expenses

Customer Service expenses BIn — 6’Su_I Transport expenses _ 7.

Telecommunication and other expenses •/Tax expenses -

LU Adminislrative expenses r501 •Artuaiin2flhl

0 Olher expenses _O54• Actuai 1112016

Electricity expenses are distinguished as making up the largest share of technological expenses. Electricityexpenses accounted for 12 percent of OPEX in 2017. They decreased by EUR 0.3 million to 2.9 million in 2017 asa result of the reduced price of one kilowatt-hour (kwh) of the purchased electricity (38.5 Mwh of electricity waspurchased in 2017 and 2016). The remaining technological expenses, which included sludge composting, repairs,service of equipment network cleaning and other technological expenses, accounted for 22 percent (or EUR 5.3million in 2017 compared to EUR 5.6 million in 2016) in the Company’s operating expenses (OPEX) of 2017.Decrease in other technological expenses was determined by more stringent control and increase of operatingefficiency.

Transport expenses increased due to increased repair expenses of the aging vehicle fleet in 2017, where theaverage age of vehicles owned by the Company is more than 10 years.

Decrease in tax (unrelated to payroll) expenses, which account for about 10 percent of OPEX of Vilniaus Vandenys,to EUR 2.50 in 2017 from EUR 2.55 in 2016 was mainly influenced by decreased environmental pollution tax as aresult of more stringent pollution concentration control. In 2017, Vilniaus Vandenys paid a total of EUR 11.3million to the State Tax Inspectorate and EUR 3.2 million to Sodra (including payroll related taxes).

The Company’s expenses increased from EUR 21.9 million in 2016 to EUR 24.6 million in 2017. The expenses in2016 was affected by reversal of impairment of trade and other receivables (EUR 12.6 million) for recovered debtsof Vilniaus Energija. Impairment of debts of Vilniaus Energija totalling EUR 4.5 million was reversed in 2017.

Expenses of depreciation and amortization of non-current assets decreased by EUR 2.5 million, to EUR 5.1 million,in 2017 compared to EUR 7.6 million in expenses of depreciation and amortization of non-current assets in 2016.Such a change was determined by reviewed and updated norms of useful life of non-current assets as from 1January 2017.

KEY FINANCIAL INDICATORS

Change in 2016-2017Key financial indicators, thousand EUR 2017 2016

thousand EUR percent

Income statement indicators

Total income 41 752 40 433 1 319 3%

Income from operating (sales) activities 39 880 39 906 -26 0%

Operating expenses (OPEX) 24 120 26 707 -2 587 -10%

EBITDA (1) 17 632 13 726 3 906 28%

Profit/loss before tax 18 115 20 267 -2 152 -11%

Net profit 15 810 19 933 -4 123 -21%

Indicators_of_assets,_equity_and_liabilities

Total assets 135 452 146 917 -11 465 -8%

Cash and cash equivalents 12 583 19 352 -6 769 -35%

Equity 121 993 109 714 12 279 11%

Financial debts 2 998 22 904 -19 906 -87%

Trade receivables (including impairments) 6 839 18 841 -12 002 -64%

Trade payables 2 507 1 747 760 44%

Profitability indicators

EBITDA margin (2) 42% 34% 8 pp

Net profitability 38% 49% -11 pp

Return on assets (ROA) (3) 11% 15% -4 pp

Return on equity (ROE) (4) 14% 20% -6 pp

Other financial indicators

Net financial debts (5) -9 585 3 552 -13 137 -370%

Equity level (6) 90% 75% 15 pp

Investment scope, from the Company’s funds 3 634 2 048 1 586 77%

Investment scope, total (7) 4 605 S 163 -558 -11%

Financial debt to equity ratio (8) 2% 21% -19 pp

Current liquidity coefficient (9) 1,96 2,31

Critical liquidity coefficient (10) 1,87 2,27

Normalized indicators

Normalized EBITDA (11) 16 347 13 726 2 621 19%

Normalized profit (loss) before tax (12) 11 251 4 860 6 391 132%

1) EBITOA(profit before interest, taxes, depreciation and amortization) = profit (loss) before tax+ costs of financiai activities—incomefrom financial activities— dividends received + depreciation and amortization expenses + asset impairment expenses + asset write-off expenses;2) EBITDA margin = EBITDA / income3) Return on assets (ROA) = net profit (loss) / average assets4) Return on equity (ROE) = Net profit (loss) / average equity5) Net financial debts = financial debts - cash and cash equivalents - short-term investments and term deposits - part of other non-current financial assetscomprising investments in debt securities6) Equity level = equity at the end of the period/ total assets at the end of the period7) Investment scope, total = investment scope, from the company’s funds + received EU grants + property contributions of shareholders + assets receivedfree of charge8) Financial debt to equity ratio = financial debts / equity9) Current liquidity coefficient = current assets / current liabilities10) critical liquidity coefficient = (current assets - inventories) / current liabilities11) Normalized EBITDA = EBITCA - profit from the sale of the building in Dominikonq St. in 2017 (EUR 1285 thousand).12) Eliminated amounts:Reversal of impairment of amounts receivable from UAB Vilniaus Energija of EUR 4555000 in 2017; interest and late payment interest of EUR 1024000;profit from the sale of the building in Dominikonq St. of EUR 1 285 000;Reversal of impairment of amounts receivable from UAB vilniaus Energija of EUR 13 181 000 in 2016; received interest and late payment interest of FUR 2226 000.

Financial debts totalled EUR 22.9 million at the end of 2016 and accounted for 21 percent compared to equity, or16 percent compared to assets. At the end of 2017, financial debts totalled a mere EUR 3 million, which accountedfor 2 percent compared to equity. Such a reduction came as a result of pre-term repayment of the major part ofloans in 2017, which Vilniaus Vandenys had at the end of 2016. In February of 2018, the Company signed with theMinistry of Finance of the Republic of Lithuania a new agreement on the line of credit of EUR 20 million with thematurity of more than 20 years, which will be used to implement investment programme.

The decrease in the net profit earned resulted in respective decrease in profitability of assets and profitability ofequity. It should be noted that the normalized profit* before tax increased by as many as 132% in 2017 due toreduced OPEX.

The increase in equity was determined not only by the net profit earned, but also by an increase in share capitaldue to the transfer of non-current tangible assets transferred by the shareholder (EUR 0.47 million). In 2017,equity increased by EUR 12.3 million to EUR 122 million and accounted for 90% of the Company’s assets.

Trade payables increased from EUR 1.7 million at the end of 2016 to EUR 2.5 million at the end of 2017. TheCompany had no outstandingtrade payables at the end of 2017. The main focus was placed on settlements andtimely fulfilment of obligations, as it helped to attract more potential suppliers and provided the opportunity tonegotiate the most favourable prices.

Compared to 2016, the scope of investments from own funds of the Company increased by 77 percent in 2017.The plan is to significantly increase the scope of investments in non-current assets in 2018.

Change in EBITDA (EUR million) and EBITDA margin (percent) in 2015-2017

18

E25u

20°b

lOQo

sfi.

(Jul

Cost reduction, rising sales volumes as well as additional income from the sale of non-current assets increasedEBITDA and EBITDA margin values in 2017. The reduction of OPEX led to EBITDA growth to EUR 17.6 million in2017 compared to EUR 13.7 million in 2016. EBITDA margin increased from 34% to 42%, respectively.

Hi

14

12

42%

6

.4

0

2015 m. 2016 m.I VA iA

2017 m.

‘Normalized profit was received having eliminated the impact of profit from the sale of the buildings in Domininkong Street in Vilnius,interest and late payment interest from uAB Vilniaus Energija and reversal of its debt impairment.

The Company’s net profit in 2017 decreased from EUR 19.9 million to EUR 15.8 million compared to 2016. Thevolumes of debts recovered from Vilniaus Energija wherefor impairments were previously formed had asignificant impact on fluctuations in net profit. At the end of 2016, EUR 4.5 million was accounted for asimpairments of doubtful debts of Vilniaus Energija in the balance sheet, but all of them were reversed in 2017.Respectively, the difference between receivables from Vilniaus Energija in 2016 and its impairment reversal wasEUR 13.2 million.

Key financial indicators, EUR million 2015 2016 2017

Income statement indicators

Total income 40,2 40,4 41,8

Lncome from operating (sales) activities 39,9 399

Operating expenses (OPEX) 28,9 26,7 24,1

Operating expenses (OPEX) exclusive of costs of restructuring 28,9 24,8 24,1

EBITDA 11,3 13,7 17,6

Profit (loss) before tax -6,8 20,3 18,1

Normalized profit (loss) before tax 2,4 4,9 11,3

Net profit -7,4 19,9 15,8

Indicators_of assets,_equity_and_liabilities

Total assets 125,7 146,9 135,5

Cash and cash equivalents 0,4 19,4 12,6

Equity 89,1 109,7 122,0

Financial debts 25,9 22,9 3,0

Trade receivables (to impairment) 23,9 18,8 6,8

Trade payables 4,9 1,7 2,5

The normalized net profit before tax (net profit for the purpose of comparability after elimination of atypicalevents) was EUR 4.9 million in 2016 (eliminated difference between the impairment of receivables from VilniausEnergija and its reversal - EUR 13.2 million, interest and late payment interest received - EUR 2.2 million). In 2017,the normalized net profit totalled EUR 11.3 million (reversal of impairment of receivables from Vilniaus Energija -

EUR 4.5 million, interest and late payment interest - EUR 1 million, profit from the sale of the buildings inDominikonq St., Vilnius - EUR 1.3 million).

Financial activity expenses amounted to EUR 0.3 million. They were incurred from the interest paid to financialinstitutions on loans, paid late payment interest and fines. Financial activity income from received late paymentinterest and interest amounted to EUR 1.3 million. The major share of this amount was related to overdue debtsof Vilniaus Energija.

In 2017, Vilniaus Vandenys had not invested in term deposits or debt securities. The Company’s income andexpenses in 2017 were not related to other currencies, so the impact of the change in exchange rates was notincurred. The Company did not use derivative financial instruments. The Company paid out EUR 4 million ininterim dividends for the result5 of the first four months of 2017. Further dividend policy of the Company has notyet been formulated.

STRATEGY

The Company’s operating strategy for 2017-2019 was approved in the fall of 2016. It defines its values, formulatesits mission, vision and strategic activity initiatives aimed at building a value-based organizational culture,improving customer service quality, ensuring data security and interoperability of IT systems, attracting more newcustomers, expanding networks, reducing their losses, and ensuring reliable infrastructure for the provision ofquality services.

Having a clear strategy and consistently implementing it, the Company fulfilled its goals set for 2017 andachieved sustainable results.

The Company’s operating expenses were 10 percent lower than planned. Performance results in 2017 were betterthan planned as a result higher income and lower expenses.

Employee engagement indicating the extent that employees are prepared to take extra effort in pursuit ofcommon goals of the Company was measured for the first time in the history of the Company. 90 percent of theCompany’s employees took part in the measurement, and the total engagement rate was 56 percent. Havingcarried out the measurement, action plans to increase employee engagement were drafted.

The introduction of the employee performance management system was started in the Company in 2017. In thefirst year, as many as 40 percent of employees already took part in annual interviews, set their goals andpurposefully pursued them.

A particular focus was placed on improving the quality of customer service, the process of administration of bills,strengthening the control of wastewater pollution and reducing water losses in 2017. In the course of the year,the process of informing customers was improved, service provision agreements were updated and debtmanagement and collection of payments was enhanced. All these measures allowed maintaining stable sales ofservices, even after the reduction of prices of the main services by a fifth as from 1 October 2017. Income fromsales of services of Vilniaus Vandenys totalled EUR 39.9 million in 2017 and remained stable.

Customer satisfaction with the services provided by the Company was also measured for the first time. A studycarried out in accordance with international GCSI (Global Customer5ati5faction Index) methodology revealed thatthe total satisfaction index of customers of Vilniaus Vandenys is 67 points. The average of European utilitiescompanies is 71 and that of Lithuanian companies —68.

VISIONDesirabLe employer, service providei and partner

MISSIONPure water and clean environment for our community

DIRECTIONS OF STRATEGICOPERATIONS INITIATIVESFocus on customer Forinition of value-based organisational cultureOperitri efficiency Improvement of customer service quaLityOperating transparency Att:icting new customers and expansion of tt network

Ensuring ifast uc:urc retiabilt and product qualityD,’,ta reliability and rit operability of IT systemsReduction of Losses in the network

OPENNESS RESPONSIBILITY P ROACTIVITY

Customer self-service portal was updated as one of the key objectives, providing customers with modern self-service opportunities: declaring meter readings, updating contact details and monitoring their payment historyon their own. This is the first step towards electronic customer service. The development of the self-serviceplatform will continue in the future, providing customers with more opportunities.

Having enhanced the network monitoring system and approved the plan for the reduction of water losses, waterlosses were reduced by 9 percent in 2017 (while the goal was to reduce them by 5 percent).

In the development and installation of infrastructure management and maintenance system in the Company,descriptions of the procedure of preventive maintenance of infrastructure, namely, water and wastewaterstations of water supply and wastewater networks, were drafted and approved. The descriptions of theprocedures laying down the frequency and scopes of inspection and repair plans were drafted and approved inaccordance with the descriptions of the procedure. The technical specification of the infrastructure managementinformation system was prepared, and the procedure of procurement of the system and its installation serviceswas started. The plan is to sign the installation agreement in 2018 and to have the infrastructure managementinformation system installed in 2018-2019.

Vilniaus Vandenys seeks for procurement procedures held by the Company to be open and transparent ensuringhigh quality of purchased materials and equipment without restricting competition, thus the Company preparedtechnical specifications in 2017 and published them on the Company’s website at www.vv.lt. Additional list ofmaterials in line with technical specifications is also published online. The plan is to draft a full-scale technicaldevelopment policy of the Company during 2018.

New SCADA system - a centralized system for control and management of technological objects and processes -

was installed in the Company in 2017 for expeditious accident management. The network data, information onwater management objects and customers digitalized and accumulated in the geographical information systemallow faster detecting and locating possible points of breakdowns.

Implementation of goals of 2017

Operating expenses, except for depreciation and 20 FUR 26,8amortization, impairment and writeoff expenses million

EBITDA - earnings from Vilniaus Energija - increasein working capital (inventories, trade and other

receivables and pagables, except far amounts recEivable from Vilniaus Energija, other currentassets

and current liabilities)

Employee engagement indicatoç indicating theextent that employees are prepared to take extraeffort in pursuit of common goals of the Company

Customer satisfaction with service quality

Difference in the volume of water supplied to thewater supply network and the volume of water sold

to consumers

The system is necessary to achieve the goals of theCompany, formulate organ:zational structure and

make staff management decisions. 35 percent of theCompany’s employees used the system in 2017.

Installation of furktir,nalitiesof declaring customerrareadings and managing customer payments in the

updated self-service portal.

CUSTOMER SERVICE

Focus on customer needs on all levels of the organisation is the top priority of the Company. In 2017, the Companyimproved main customer service areas.

In 2016, the Company approved the customer service standard and in 2017 it initiated customer service standardtrainings, which were attended by all employees of the Company. Employees of contractors, who keep contactwith customers of Vilniaus Vandenys, replace meters and check readings at the place of residence of customers,also received the trainings.

To ensure the standard, a two-tier control system was implemented in Vilniaus Vandenys. Employees are nowevaluated by their direct manager and an independent evaluator. Each employee serving customers directly isevaluated at least once per quarter. 9 out of 10 employees met the evaluation criteria.

SURVEYS

The Company conducted a customer satisfaction survey for the first time. It was carried out according to the GCSI(Global Customer Satisfaction Index) methodology, which is recognized globally and perfectly suits the publicsector and monopolistic markets. Almost 2 500 business and private customers were interviewed during thesurvey.

The survey results showed that the current level of customer satisfaction of Vilniaus Vandenys is slightly belowthe average rates of European public utility companies, but is in line with the average of the Lithuanian utilitiessector. The survey allowed clearly identifying the weaknesses, having already started changing the majority ofthem, creating new and modern service channels (self-service), having installed the system for informing

Ind lit IC De’n “in Wei it % Goal nf D17 Theta1. OPEX

2Normalized operating cash

flow

3. Employee engagement

4. Customer service quality

5. Water losses

Implementation of employ6. ee performance manage

ment system

Development of customerself-service system

10 FUR 3.3million

20 Measured

20 Measuredp

ID •5 percenr

10 Completed

10 Completed”

- planned percentage change from the calculated indiratnr value in 2016-completion Of the specified par: of the project

16.2 (-9)

40

InstaLLed

customers by SMS (in the event of accidents in water supply), which is operating smoothly now, etc. In order toensure continuous monitoring of customer needs and assessment, the study will be conducted annually.

Comparison of GCSI (Global customer satisfaction index) norms

The wortd(e[ectricit ÷ utiLitiesin 2016-2017)

USA Europe -

Europe a!

Yn 67

Lithuania(in 2016-2017)

—IElectricitg-gas

Lithuania (total)

Viln’aus nderiijs

Household waste management

Heat energy

Since September 2017, the Company has also participated in the survey carried out by the Vilnius city municipality,which measures the rating of customer service and services of municipal companies. By actively encouragingcustomers to share their ratings and provide feedback (the link is publi5hed on the Company’s homepage, emailsand payment notices to customers), the number of respondents per week has increased 20 times over the courseof four months, from 13 to 374 respondents; the service quality rating rose from 3.89 to 5.43 (by 1.54) points andthe service quality improved from 3.4 to 4.99 (by 1.59) points. The rating is carried out in a 10-point scale.

This year, the Company received a total of 173 complaints regarding customer service, payments and serviceprovision, 58% of which were unfounded complaints. For the most part, customers complained about paymentor debts (31%), but the number of such complaints has consistently decreased.

• Founded

• UnfoundeJ

42% 101 pcs

58%

• Natural

• LegaL

CALL CENTRE

In 2017, the call centre served almost two thirds of the customer flow of Vilniaus Vandenys. The aim is to resolveas many questions as possible in one call: to provide information on the payments made, to update contactdetails, sign an agreement, provide information on meter readings and other questions.

E. SELF-SERVICE PORTAL

The development of a new modern self-service portal was started at the end of the year. Here customers canconveniently log in using a customer code, a mobile signature or online banking and declare their meter readings,see payment and declaration history or pay for the services provided.

The self-service portal will become even more convenient for paying bills in 2018. Signing contractual documents,projects or book the time for meeting with specialists will be possible in the portal. Customers will also be offeredmore convenient tools and services.

CUSTOMER SERVICE DIVISIONS

In 2017, Vilniaus Vandenys moved to a modern and convenient office building “Duetto” located at Spaudos St. 8-1, Vilnius. Here customers are welcomed in a spacious customer service division, where all the matters of concerncan be settled and all que5tions can be answered. To manage customer flow, a modern queue managementsystem was installed. The building can easily be accessed by public transport and own cars. There is a reservedparking lot next to the building.

Customer service divisions in regions have also been renovated - alëininkai customer service division recentlymoved to newly renovated premises. Divisions of Nemen&né and venionys will also be moved to renovated andmuch more convenient premises in 2018.

WEBSITE

Information for both natural and legal customers has been systemized and specified on the updated website atwww.vv.lt. Information is provided in a clearer and more comprehensive manner; customers can order a relevantnewsletter.

BILLS

In order to make bills as clear and informative as possible, the principle “one customer - one bill” was implementedfor business customers. By the lO’ of the month, customers are presented with a VAT invoice for the servicesprovided in the previous calendar month, which includes all relevant cu5tomer billing information: the balance atthe beginning of the month, information on new charges and corrections, and the balance at the end of themonth. The offset of payments is a clear and uniform process, covering interest first of all and then setting off thedebt starting with the oldest unpaid VAT invoice.

In cooperation with partners, private customers have been offered to conveniently and easily pay via electronicpartner platforms, namely, on self-service portals “Mano gile” or “Viena sskaita”. Here, customers can find allthe relevant information: the amount payable or the overpaid amount, water meter readings used as a startingpoint for declaring the actual meter readings.

Bills for private customers, who do not declare their readings, are presented by calculating the average monthlyconsumption of those customer. They are recommended to revise their readings once per quarter, while5pecialists of the Company pay a visit to customers, who have not declared their readings for more than half ayear.

DEBTS

The implementation of the debt management process was completed in 2017. Now customers are informedabout the formed debt in 3 ways: by SMS, e-mail and letters. Cooperation with “Creditinfo” and “Intrum” wasstarted in debt collection. All these tools allow customers to better manage their payments for services.

In 2017, the number of debtors, who owe more than 6 euros, decreased by a fourth from 16000 to 12000 debtors.

READINGS CONTROL

Having increased the control of declaration of meter readings, back at the end of 2016, residents of multi-apartment houses were provided with the opportunity to declare meter readings not only when paying forservices at payment collection points or on the Company’s self-service portal, but also by calling the shortcustomer service line 1889.

Control of customers who do not declare their readings and of territories known for higher water losses has alsobeen enhanced. “City Service Engineering” (“Mano Büstas”) has also been providing services of taking meterreadings according to a contractor agreement since May 2017.

Employees of Vilniaus Vandenys together with their contractors checked a total of 79 112 objects and captured5.7 million m3 of water in 2017 (compared to 64 770 objects and 5.2 million m3 of water in 2016).

The number of private customers having not declared their readings in apartments for more than 12 months wasreduced by 65 percent in 2017.

AGREEMENTS

The agreement signing process was updated in 2017. All newly signed agreements are digitized and uploaded ine-format in systems, and, if necessary, are quickly and easily accessible by electronic means.

SERVICE PRICE

From 1 October 2017, prices of the majority of main services of the supply of drinking water and wastewatermanagement were reduced by about a fifth for customers in Vilnius, districts of Vilnius, SaIininkai and venionys.

The service price for private customers living in multi-apartments houses decreased from FUR 1.71 to 1.36/ m3,for those who live in private houses — from FUR 1.55 to 1.28. The price of services of drinking water andwastewater management also decreased for companies by 20 percent — from FUR 1.36 to 1.10 (exclusive of VAT)per m3.

Monthly sales price for customers living in multi-apartment houses, who have their own water meters, remainedunchanged and was FUR 0.63, while the price for residents of private houses increased by 5 cents from EUR 0.68to 0.73. Having installed meters in customer houses, which are maintained by Vilniaus Vandenys, the monthlysales price increased in multi-apartment houses by 6 cents and was EUR 1, and it grew by Scents to FUR 1.17 inprivate houses.

Despite an insignificant increase in sales prices, the fee for cubic meter of consumed water makes up the majorshare of the amount paid by customers, thus average customer bills deèreased.

Average bills of customers living in multi-apartment houses decreased from EUR 6.33 to FUR 5.42. Average billsof residents of private houses decreased from EUR 13.43 to EUR 11.15. Bills for residents decreased by an averageof 15 percent.

WATER METERS

The Company focused more not only on the collection of accurate water consumption data, but also onmetrological inspection of drinking water meters, replacement and installation of meters.

Share of inspected meters 2016-2017 m.

r -‘

44

• Inspected

2 6%

100 °‘b

80%

60%

40%

20 °/o

0

In 2017, the number of meters without metrological inspection was reduced from 44 percent to 26 percent. Themajor share of such meters — meters of residents, were not metrologically inspected. In 2018, these works will becontinued, focusing more on business customers and residents of private houses.

On 31 December 2017, there were 77serviced by Vilniaus Vandenys.

percent of water meters owned by the water supplier in the territory

Distribution of WM by ownership in 2016-2017

350.000

300.000

2 50.000

200.000

150.000

100.000

50.000

0

12 5.569

193.174

76.388

2016 2017

• Ownership of VV • Ownership of subscribers

56%

2016 2017

I Notinspected

249.22 ri

CONNECTING NEW CUSTOMERS TO THE NETWORKS

In order to facilitate connection to networks, the process of connection of new customer5 to networks built usingEU funds was reviewed and changed.

New agreements for these districts, providing for service provision conditions when connecting to the networksand having already become a client, were prepared, which means that after a customer signs an agreement andconnects to the networks, this agreement automatically becomes an agreement on the supply of drinking waterand wastewater removal, thus additionally signing no other agreement will be necessary.

When connection is financed from EU funds, a project for customers is prepared free of charge, also providingadditional services mandatory for approving networks to be suitable for use (installation of a branch of a watersupply network, hydraulic tests, disinfection and wash, microbiological water tests, installation of a meter unit)and geodesic photographs necessary for registering the network for free. Materials necessary for installing a watersupply network branch and a water metering unit are also provided free of charge in the course of theperformance of works.

A special team promptly carries out these works and, if there are no obstacles, having connected to the networks,all mandatory works are performed in a single visit, and the customer can start using the services provided byVilniaus Vandenys.

Those customers, who are not yet able to connect to networks, i.e. in districts, where Vilniaus Vandenys isimplementing the development project, have also been offered to sign agreements. That way the Companycommits to start the connection process - prepare a project - immediately after completing works of constructionof the networks.

Customers are “accompanied” by a customer manager throughout the process, who continuously informs themabout the necessary actions to be taken and coordinates the dates for the performance of works.

New customers connected to district water supply and wastewater management networks

To water supply networks To wastewater networks

1179 1137

Dynamics of the number of customers of the Company

Customer type 31 December 2017 31 December 2016

Private 243.074 239.922

In multi-apartment houses (settlement223.442 221.145

according to the meter)

In multi-apartment houses (settlement687 734

according to the feed-in point)

In private houses 18.945 18.043

Business 7.495 7.454

Distribution of private customers by service provision territories

Territory 31 December 2017 31 December 2016

Vilnius city 233.864 230.523

. Vilnius district 2.346 2.339

aleininkai district 2.975 3.144

venionys district 3.889 3.916

MANAGEMENT OF THE COMPANY

In accordance with the Company’s Articles of Association, the management bodies of the Company are thegeneral meeting of shareholders, the collegial supervisory body — the Supervisory Board, the collegialmanagement body — the Board and the sole management body — the manager of the Company. Vilnius citymunicipality, Vilnius district municipality, venionys district municipality and alininkai district municipality areshareholders of the Company, who delegate their representatives to the Company’s collective supervisory andmanagement bodies.

GENERAL MEETING OF SHAREHOLDERS

The general meeting of shareholders is the supreme management body of the Company. The general meeting ofshareholders consists of representatives delegated by municipalities of Vilnius city (its share of ownershipaccounted for 94.89 percent on 31 December 2017), Vilnius district (1.88 percent) and Sven&onys district (1.44percent).

The general meeting of shareholders has the exclusive right to elect members of the Supervisory Board and torevoke the Supervisory Board or its members.

SUPERVISORY BOARD OF THE COMPANY

The Company’s Supervisory Board consists of 7 members elected by the general meeting of shareholders for aterm of office of four years. The Supervisory Board elects the Chair of the Supervisory Board from among itsmembers. The following is the composition of the Supervisory Board:

AuksE Kontrimiené, Chair of the Supervisory Board, a member of Vilnius City Municipality Council,Albert Narvoi, Deputy Director of Vilnius District Municipality Administration,Artur Liudkovski, member of Vilnius City Municipality Council,Linas Kvedaraviius, Deputy Mayor of Vilnius City Municipality,Renata Cytacka, member of Vilnius City Municipality Council,Skirmantas Tumelis, member of Vilnius City Municipality Council,Vaidas Kukarénas, member of Vilnius City Municipality Council.

BOARD OF THE COMPANY

The Board of the Company consists of 7 members elected by the Supervisory Board for a term of office of fouryears. The Board elects the Chair of the Board from among its members.

The Board which served till 8 October 2017 consisted of the following members:

Darius Nedzinskas (Chair of the Board), Gintaras Maelis, Juozas Buitkus, Arüna5 Bivainis, VylunE Urboniené,

Dovile Mikalajune, Miroslav Romanovski.

After the resignation of some Board members, a new Board of the Company started working on 9 March 2018:

Virginijus Pauia (Chair of the Board), Director of City Maintenance and Transport Department of Vilnius CityMunicipality;

Andrius Grikeviëius, business partner at UAB Adwisery;

Dangirutis Januas, Director of UAB Verslo Konsultacijq Spektras;

Dovile Mikalajüné, Deputy Director of Legal Department of Vilnius City Municipality;

Edgaras Derekeviius, lawyer at E. DerekeviEiaus law firm;

Julius Morkunas, Deputy Director of Vilnius City Municipality Administration;

Miroslav Romanovski, Head of Local Maintenance Department ofVilnius District Municipality.

AUDiT COMMIHEE

The audit committee of Vilniaus Vandenys was establi5hed at the meeting of the Supervisory Board of Vilniaus

Vandenys held on 8 March 2018, also approving its rules of procedure.

Laura Joffe, Finance and Administration Director at BALTO print, and Vladas Puzeras, CEO and operationsadvisor of Provestum Group subsidiaries, were appointed independent members of the Audit Committee.Alfredas Ziberkas, Chief Specialist of Corporate Governance at Property Department of Vilnius City MunicipalityAdministration, was appointed a dependent member.

HEAD OF THE COMPANY

The Head of the Company is the CEO appointed, removed and dismissed by the Board of the Company. Under thedecision of the Board of 8 December 2015, starting from 11 January 2016, Aidas lgnataviEius held the office of theCEO till 8 October 2017. After his resignation, Virgilijus ukauskas, Director of Production Service, was appointedActing CEO as from 11 October 2017 by the decision of the Company’s Board of 3 October 2017.

ORGANIZATIONAL STRUCTURE OF THE COMPANY

The Company operates in all geographical territories indicated in the license issued by the National Commissionfor Energy Control and Prices, but it does not have any independent divisions and branches.

Structural units of the Company, namely, 5ervices, departments and divisions, are directly subordinate to the CEO:

Production Unit, Director—Virgilijus ukauskas (Acting CEO),

Customer Service Division, Director — Giedre Blazgiené,

Finance Department, Director — Viktoras Baltukonis,

Organizational Development Department, Director — Jolanta Diskaité,

Operating Quality Management Department, Director — Darius Bagdonas,

Prevention Unit, Manager — Vidmantas Bruzgys,

Legal Unit, Manager — Gintaras Makimas,

Procurement Unit, Manager — Arünas Jurgelaitis,

Internal Audit Unit, Manager — 2ivile Peredné,

Communications Department

POLICY OF OPERATIONS OF THE COMPANY

In the performance of its activities, the Company seeks to maintain transparent relations with all marketparticipants — customers, partners, contractors and shareholders. This includes transparent organization of publicprocurement procedures and compliance with procedures.

In its activities, the Company follows the Code of Ethics, the Code of Anti-Corruption Principles and the Rules ofDeclaration of Private Interests and Management of Confidential Information. The Prevention Unit of theCompany ensures and controls the compliance therewith.

Vilniaus Vandenys strives to become an extremely open and transparent company, and to be a role model forother state and municipality-owned enterprises in the field.

The priorities of the Company’s quality and environmental protection policy are related to the implementation ofthe initiatives provided for in the Company’s strategy:

• To work in an efficient and transparent manner and to improve customer service in light of theirexpectations;

• To expand and renovate water supply, wastewater collection and treatment infrastructure owned bythe Company;

• To reduce network losses;

• To conserve natural and energy resources and reduce environmental effects.

By assuming liability for environmental impact of activities, the management of the Company commits to:

• Implement environmental protection and other legal requirements governing the Company’s activities;• Improve integrated ISO 9001:2015 and ISO 14001:2015 quality and environmental management system

and to allocate the resources necessary therefor;• Improve the management of operating processes, thus creating conditions for more effective and

efficient operations;• Create value-based organizational culture, promoting efficient and rational use of natural and energy

resources.

MEMBERSHIP IN ORGANIZATIONS

The Company is a member of the Lithuanian Water Suppliers Association (LVrA).

INFORMATION ABOUT CHANGES IN THE COMPANY’S ARTICLES OF ASSOCIATION

In September 2017, share capital of the Company was increased by a property contribution of the Vilnius citymunicipality in the value of EUR 469 000. A respective amendment to the Articles of Association was registeredwith the Register of Legal Entities on 27 September 2017.

The general meeting of shareholders was convened on 4 January 2018, during which the shareholders decided toincrease share capital of the Company by the property contribution of the Vilnius city municipality in the value ofnearly EUR 196 000. An appropriate amendment to the Articles of Association was registered with the Register ofLegal Entities on 31 January 2018, while the respective increase in share capital will be reflected in the Company’sfinancial statements for 2018.

CHANGES IN REGULATORY ENVIRONMENT

SETTING SERVICE PRICES

The prices of drinking water supply and wastewater treatment services are set in accordance with theMethodology for Setting Prices of Drinking Water Supply and Wastewater Treatment Services approved by theNCC, and the principles of non-discrimination, cost recovery and the “polluter pays” principle. The prices ofdrinking water supply and wastewater treatment services are calculated on the basis of costs for separate partsof the drinking water supply and wastewater treatment activities, in accordance with approved drinking watersupply and wastewater management infrastructure development plans and plans of operations of drinking watersuppliers and wastewater managers. The calculation of prices takes into account the estimated necessary serviceprovisions costs, the value of the assets used in the licensed activity, the return on investment that correspondsto the criterion of reasonableness, the necessary costs of implementation of the plan of operations and theinfluence thereof on price increase. Service provision efficiency indicators are set. Municipality councils approvethe base prices of drinking water supply and wastewater treatment services coordinated with the NCC. Base pricesare set for a three-year regulatory period and are recalculated each year. The prices equal to base prices areapplied in the first year of validity of base prices. Municipality councils approve recalculated base prices of drinkingwater supply and wastewater treatment services coordinated with by the NCC. The NCC controls the setting ofthe prices of drinking water supply and wastewater treatment services set by municipality councils and appliedby drinking water suppliers and wastewater managers in accordance with the Methodology for Setting Prices ofDrinking Water Supply and Wastewater Treatment Services and the pricing principles laid down in the Law onDrinking Water Supply and Wastewater Treatment, and makes sure that the prices cover the necessary costs ofsupply of drinking water and wastewater treatment services as well as other related necessary expenses.

DECISIONS OF THE NATIONAL COMMISSION FOR ENERGY CONTROL AND PRICES

On 3 January 2017, the NCC heard a dispute between the user P.M. and UAB Vilniaus Vandenys regarding thevalidity of the sales price (subscriber fee) for the benefit of UAB Vilniaus Vandenys and decided in its ResolutionNo. 03-2 that a consumer’s failure to conclude a written agreement with a water supplier shall not cancel hisobligation to pay the set sales price for the provision of services each month.

On 30 June 2017, the NCC approved by its Resolution No. O3E-281 lower base prices of drinking water supply andwastewater treatment services of UAB Vilniaus Vandenys. The reduced prices were approved in Vilnius CityMunicipality Council on 26 July 2017, in Vilnius District Municipality Council - on 28July 2017, in aIininkai DistrictMunicipality Council - on 29 August 2017 and in veneionys District Municipality Council - on 31 August 2017, andtook effect on 1 October 2017.

On 18 January 2018, the NCC determined by its Resolution No. 03E-14 that the principle of differentiation of theprice of the service of settlement meter maintenance and customer service chosen by Vilnius city, Vilnius district,al&ninkai district and venëionys district violated interests of individual subscribers. This violation had to berectified in 2 months.

NCC PUBLIC CONSULTATIONS

On 23 May 2017, the NCC prepared a draft amendment to the Methodology for Setting Prices of Drinking WaterSupply, Wastewater Treatment and Surface Wastewater Management Services and presented it for publicconsultation. The legal act was adopted by Resolution No. 03E-443 of 17 October 2017 and took effect on 1December 2017.

Major changes: the permissible drinking water losses in network5 of multi-apartment houses forming due tometer errors occurring between installed feed-in drinking water meters of multi-apartment houses and drinkingwater meters in apartments shall not exceed 2% (compared to the previously permitted 10%); operators shall besubject to this change when setting new base service prices; drinking water suppliers and managers of wastewaterand surface wastewater shall present to the NCC draft base and recalculated base prices not later than 5 monthsbefore the expiry of the set base or recalculated base prices; before that, this term was 4 months; when settingthe salary fund, the change in the actual average salary in the upcoming reported period forecasted by theMinistry of Finance will be considered; when informing the NCC about decisions of municipalities on specificprices, drinking water suppliers and wastewater managers will have to additionally provide data on differentiatedprices of the service of meter maintenance and customer service.

Draft Rules for Imposing Sanctions were presented on 17 July 2017. The legal act was adopted by Resolution No.03E-4 of 12 January 2018.

Major changes: maximum sanction amounts were increased; a possibility to impose a sanction on energycompanies, natural and legal persons defaulting on requirements of the NCC, its authorized employees, hiredspecialists and experts was established; the NCC is no longer required to give a time limit for rectifying a violationbefore imposing a sanction on an energy company.

A draft Description of the Procedure of Inspections of Regulated Activities of Energy Companies was presentedon 17 July 2017. The legal act was adopted by Resolution No. 03E-5 of 12 January 2018.

Major changes: actions, which the NCC and its authorized employees may perform during inspections were listed,also specifying rights and duties of the NCC, its authorized employees, energy companies and other natural andlegal persons during inspections; a clearer regulation of the inspection procedure was presented, enshrining alonger period of time for conducting an inspection - up to 9 months (compared to the current 6 months), alsoproviding for a possibility to extend the inspection for a longer period of time — up to 6 months (currently — 3months); a longer period of time for presenting comments to a draft deed of inspection was planned, alsoproviding for a longer period of time for drafting a deed of inspection and listing objective circumstances for whicha member of the inspection commission may refuse to sign a deed of inspection; cases when an inspection maybe suspended or terminated were defined.

Draft Rules of Procedure for Examining Administrative Offense Cases in the National Commission for EnergyControl and Prices were presented on 28 November 2017. The legal act was adopted on 22 February 2018 byResolution No. 03E-51.

Major changes: the competence of NCC in examining administrative offense cases was defined, listing the caseswhen the Commission shall hear administrative offense cases itself and when they shall be transferred toadministrative court, establishing that administrative offense cases shall be examined by the NCC in a writtenprocedure, except for cases when a person subject to administrative liability asks to examine the case in an oralprocedure; cases were listed when the NCC shall terminate examination of administrative offenses, providing fora possibility to agree with the claim regarding a resolution adopted by the NCC in an administrative offense case,to repeal the appealed resolution and to adopt a new resolution in the examined administrative offense case; aperiod of time for appealing NCC’s re5olution in an administrative offense case was enshrined.

Draft Description of the Requirements for Separating Accounting of Drinking Water Supply, WastewaterTreatment and Surface Wastewater Management Companies and Cost Allocation was presented in 28 July 2017.The legal act was not adopted.

New version of the Rules for Providing Information of Energy, Drinking Water Supply, Wastewater Treatment andSurface Wastewater Management Companies was presented on 19 September 2017. The legal act was notadopted.

Draft amendment to the Description of the Procedure for Publishing Information was presented on 27 December2017. The legal act was not adopted.

PUBLIC PROCUREMENT

In 2017, the Company focused on promoting competition and increasing procurement efficiency when holdingits public procurement procedures.

The key tasks and challenges were related to the Law on Procurement Procedures of Entities Operating inWater, Energy, Transport and Postal Services of the Republic of Lithuania which took effect on 1 July. TheCompany paid special attention to adapting the new law in the Company’s activities, adjusted the establishedinternal procedures, informed and advised employees and suppliers on changes and their application.

The developed processes and implemented effective procurement management system allowed preparing forthe installation of a new procurement management system as from 1 January 2018. The purpose of the newprocurement management system is to switch to electronic public procurement documents. This contributed tothe main goal of procurement - to make procurement procedures shorter and more efficient.

The Company’s training policy has also continued, focusing on building competencies of procurement initiatorsand contract owners. Internal procurement trainings introducing procurement innovations, court conclusionsand best practices were continuously held in the Company.

EU-funded procurement procedures completed in 2017

Contract price inNo. Name of procurement Successful tenderer

EUR exci. VAT

1 Reconstruction of the main water supply and UAB KRS 455.888,00household wastewater collector in AuktaiiqSt., Vilnius, and “Reconstruction of a culvertthrough Vilnele river to Paplaujos St.”

2 Renovation of water supply networks in N. UAB PoeminEs 194.214,88Vilnia and Viinskio St. Jungtys

3 Renovation of wastewater pressure lines in UAB Poeminés 349.988,14Vilnius iungtys

4 Construction of water supply and wastewater UAB ,,KRS’ 640.000,00di5posal networks in nipikès neighbourhood,between !algirio St., Lvovo St., Linkmenq St. andTrimit St. (the southern part) in Vilnius

5 Development of wastewater networks in UAB lnstita 650.886,00Naujoji_Vilnia

6 Development of water supply and wastewater UAB iauliq Plentas 283.800,00networks in SB Daile (Antakalnis)

7 Development of water supply and wastewater UAB lnstita 347.485,40disposal networks in Naujininkai eldership,Apso, Dusinén4, Katros, Trobq St. in Vilnius(Salininkai)

8 Development of water supply and wastewater UAB Mikludava 245.922,80networks in venioneliai

EU-funded procurement procedures launched in 2017

No. Name of procurement1 Reconstruction of wastewater collector from Ozo St. to wastewater pumping station at

Upes St. 152 Reconstruction of d 400 mm wastewater culvert through Néris between Gotauto St. and

Zvérynas

: 3 Renovation of water supply networks in Grigikes, Salininkai and Trakq yoke4 Reconstruction of self-drainage wastewater networks in VilniusS Construction of water supply and wastewater disposal networks in nipikes between Ozo

St., 1algirio St. and Maiiagala St. (the northern part) in Vilnius

6 Construction of water5upply and wastewater networks in Naujininkai eldership: Pumpurq,Alytaus, Merkinés, Tyzenhauzq, Perlojos, Varénos, J. Bielinio, Butrimoniq, Tarpkalnio,Rieutq, Jotvingiq, Lenkq, Konduktoriq, Panevéiio, Vaivoryktes, Alénq, lemininkq andPabares Streets in Vilnius

7 Development of water supply and wastewater networks in SB Aura

Development of water supply and wastewater disposal networks in Plukiq St., Pieni St.,alpusniq St., Pelynq St., 1vaigdikiq St., ilageliq St., Viksvq St., Purien4 St., Vedryn St.,Samant St., Nakvitj St., Barsukynés St., Antakalnis eldership, Vilnius

Development of water supply and wastewater disposal networks in Geleiné, Raguvos,Sukiléliq, Slenio, Ribikiq, Didioji Streets, Rasos eldership, Vilnius

10 Development of water supply and wastewater networks in Giedros St., Kregthi4 St.,Vanagq St. (Antakalnis)

11 Construction of water preparation plants in Naujoji Vilnia12 Kalnenai water preparation plants13 Reconstruction of wastewater treatment facilities in Vilnius wastewater treatment plant14 Maintenance services for reconstruction and development of water and wastewater

networks, VRJ15 Maintenance services NVj16 Reconstruction of water supply and wastewater networks in venëionys and venionéliai17 Construction of water improvement plants18 FIDIC, maintenance and administration services (venEionys)

Major Company-funded procurement procedures completed in 2017

Contract price inNo. Name of procurement Successful tenderer

EUR excl. VAT

1 Works of repair and restoration of road, AG Eurovia Lietuva 2 100 000,00 €pavement and lawn surfaces after accidentsin water supply and/or wastewater networksand repair of wells and collapse pits posing athreat of an accident

2 Replacement of meters UAB SKDR, UAB 1 320 000,00 €GROUTERMA, UABSANTERMITA

3 Flocculants for sludge thickening and UAB Ekotakas (1 1 278 981,79 €dewatering procurement lot),

R.Vanago firma Verina (2. procurement lot)

4 Technical service and repair of vehicles with UAB Martonas 788 000,00 €the total mass of up to 3.5 and above 3.5tonnes

S Technical service of the boiler house, UAB Envija ES 763 000,00 €electricity and heat production facilities

6 Service of maintenance and repair of UAB Axis industries 724 000,00 €technological facilities in wastewatertreatment plants

7 Wastewater and water supply pumps UAB Eccua, UAB Vandens 280 000,00 €Siurbliai, UAB WiloLietuva, SIA Grundfos

Ipumps Baltic

8 Services of maintenance of wellfields, UAB 2 MP 270 000,00 €pumping stations and production territories,mowing services

Part of Company-funded procurement procedures started in 2017

No. Procurement name

1 Procurement of meters

2 Reconstruction of water supply network pipes and equipment

3 Procurement of water supply dampers and check valves

4 Procurement of infrastructure operation management information system

5 Hydrodynamic sanitary car with regenerative system

6 Procurement of hydraulic modelling information system

7 Service of wash of wastewater pumping station reservoirs

8 Procurement of TV diagnostic equipment

9 Procurement of computer network hardware and software

INVESTMENT

In order to ensure availability of water supply and wastewater treatment services to residents as well as theircompliance with quality, environmental and health requirements, the Company constantly invests in thedevelopment and modernization of infrastructure. More than EUR 2 million was invested in infrastructuredevelopment and modernization in 2017.

A contract on financing and administration of EU investment action programme project No. 05.3.2-APVA-R-014-01-0001 “Renovation and development of drinking water supply and wastewater treatment system in Vilnius city”was signed on 27-12-2016.Total project funds — EUR 41913.5 thousand, with 50 percent, or EUR 20956.75, financing from EU funds.

Financing from EU funds for the project No. 05.3.2-APVA-R-014-01-0009 “Renovation and development ofdrinking water supply and wastewater management system in veneionys district” was allocated by order of theMinister of Environment of 14-12-2017. Project funds total EUR 1480.9 thousand, with aliRcated financing fromEU funds of 49.97 percent, or EUR 740.1 thousand, and funds of the project promoter (the company) and thepartner (venionys district municipality) (50.3 percent) — EUR 740.8 thousand.

EU-funded infrastructure development projects

Components New networks being built, km New residents being Servedconnected residents

Water Wastewat To new To newsupply er water wastewatnetworks networks supply er

networks networksDevelopment of water supply and 25,151 30,95 3.432 3.559wastewater networks (11 objects)Construction of water improvement 22.117equipment — 2 objects >

Development of water supply and 1,13 2,51 100 150wastewater networks in venioneliaiConstruction of water preparation facilities 3.000in ven&onys districtalininkai water preparation facilities* 6.700The project will be carried out if savings are achieved in project No. O5,3,2-APVA-R-014-O1-0001.

EU-funded infrastructure reconstruction projects

Components Networks being built, reconstructed, km ResidentsWater supply Wastewater servednetworks networks

Reconstruction of water supply and 8,971 13,3wastewater networks (8 objects)Reconstruction of Vilnius wastewater 532.220treatment plantReconstruction of water supply and wastewater 2,3 3,308networks in venionys and venioneliaiReconstruction of venëionys wastewater treatment 2.468plant

Plan of execution of EU-funded infrastructure development projects (thousand EUR)

Development projects 2017 2018 2019 2020

In Vilnius city 9,6 6.046,9 2.339,0 -

In Svenionys district 6,0 764,0 125,8 -

In aIininkai district 371,2Total for infrastructure development projects 15,6 6.810,9 2.464,8 371,2

Plan of execution of EU-funded infrastructure reconstruction projects (thousand EUR)

Reconstruction prolects I 2017 2018 2019 2020In Vilnius city I 14,3 4.531,8 15.154,4 10.000,0In venëionys district 4,0 515,6 500,0 2.500,0Total for infrastructure development 18,8 5.047,4 15.684,4 12.500,0projects

Works planned in EU-funded projects

Components Networks being built, Resident5reconstructed, km served

Water Wastewatesupply r networks

I networksReconstruction of water supply and j 8,971 13,3wastewater networks ( 8 objects)Reconstruction of Vilnius wastewater .E 532.220treatment plant

Reconstruction of water supply and wastewater 2,3 3,308networks in venionys and venioneliai

Reconstruction of venionys wastewater treatment 2.468plant

Infrastructure reconstruction project5 funded from own funds

Strategic action plan and actual in2017

. 2017Infrastructure renovation works -

SAP 2017execution Completion

(thousandEUR)

Renovation of wellfields and wells, drilling new wells 211,2 131,3 62,2%

Works of restoration of water supply networks and wells, repair840,6 655,8 78,0%

and replacement of fittings

Works of restoration of wastewater networks and wells, repair653,1 979,6 150,0%

and replacement of fittings

Works of restoration of wastewater stations 88,2 49,9 56,6%

Development of wastewater and water station SCADA system,281,4 117,6 41,8%

renovation of el. equipment

TV diagnostic equipment 180 18,5 10,3%

Renovation of wastewater treatment and sludge management755,2 110 14,6%

facilities

Total reconstruction projects from own funds 3.010 2.062,7 68,5%

RISK AND CONTINGENCY FACTORS AND THEIR MANAGEMENT

RISK MANAGEMENT POLICY

The Company’s risk management system is based on the principles of European standard EN 15975-2:2013

prepared by COSO (Committee of Sponsoring Organization of Treadway Commission), ERM (Enterprise RiskManagement) and CEN (European Committee for Standardization).

The Company’s operating goals are understood broadly and include both general objectives related to the

Company’s strategic directions, initiatives and their implementation, as well as specific objectives related to theperformance of the functions of separate divisions,

The risk in the broad sense is perceived as a negative impact on the Company’s goals and achievement of itsoperating results, reputation and image.

RISK MANAGEMENT AND CONTROL MODEL

In the management of control of its risk, which it faces in its activities, the Company applies the principle of the

“three lines of defence” determining a clear di5tribution of responsibilities for risk management and control

between the Company’s management and supervisory bodies, structural units or functions.

Risk management and control model scheme

SUPERVISORYBOARD

BOARD

MANAGEMENT________

1st Inc of defence

• Emploijees and managerscftirCor:ru,ut: t_:t-r*oarc

not a part of tit 2rd ant 3rdlinen, n. ensJrilç

cr fo min e of oper:-ngh nC L.ri(Qrr ii; t:’ -bI earllreri—ts thrt tt,IIjt

ubj .t Ic

• Un tsr d iItIj ciit iICis’fs

of core acti ties c tikrngprtnt -‘ t ci enp.r

owners Of 19V processes andmanagers

MAIN RISK TYPES AND THEIR MANAGEMENT

The following are the main risk types and risks which the Company faces in its activities:

1. Technological (production) risks:1.1. discharge of wastewater into the environment;12. top (A) level accidents in wastewater networks;1.3. fulfilment of assumed Iiabilitie5 in the implementation of EU co-funded projects.

2. Risks related to the provision of services to customers:2.1. non-collection of income from customers for the services provided to them;2.2. failure to meet metrological requirements of meters;2.3. late provision of the services of connection to water and wastewater networks to customers.

3. Business (operating) risks — the risk of increase of losses and/or adverse impact on reputation, whichmay be determined both by external environmental or internal factors:

management of contracts with suppliers of goods and services, and contractors;public procurement at a price higher than the market price;excessive duration of public procurement procedures;information security risks and IT failures that can disrupt production and cu5tomer serviceactivities;non-compliance with legal requirements;excessive pollution;accidents at the workplace;other risks important to the Company.

IU:E1

3rd line of defcnce \

• Internat audit

• ExternaL audit

• Funrtinns/nanagement Sc rirtures execut Irg art’v bes • Funri onsist,, iriIjres supervising artEvi es

3.1.3.2.3.3.3.4.

3.5.

3.6.3.7.3.8.

TECHNOLOGICAL (PRODUCTION) RISK MANAGEMENT

The risk of discharge of wastewater into the environment and risk of accidents in wastewater networksforms for the following main reasons: 1) the aging or inappropriate operation of wastewater networks andobject infrastructure; 2) inappropriate actions by third parties; 3) manifestation of natural phenomena (e.g.rainfalls). The Company plans these risks in application of the following:

1) planning and implementing wastewater operation and repair works, projects of networkdevelopment and reconstruction;

2) promptly eliminating accidents and failures;3) ensuring monitoring of quality parameters of sludge forming in wastewater and wastewater

management process.

In the implementation of the development of water and wastewater networks, the Company has concludedagreements with the Environmental Project Management Agency (EPMA) of the Ministry of Environmentof the Republic of Lithuania regarding the implementation of projects for the development of water andwastewater networks using EU funds. In the management of this risk, the Company:

1) ensures continuous monitoring of projects for the development of networks implemented usingEU and Company funds and adoption of prompt decisions related to the implementation of theseprojects;

2) carries out planned actions and ensures their monitoring in order to fulfil contractual obligationsrelated to the connection of new customers to the Company’s networks.

MANAGEMENT OF RISKS OF PROVISION OF SERVICES TO CUSTOMERS

In the provision of services to customers, the Company continually expands its existing customer base andstrengthens and continuously improves processes of payment collection and debt management in order toimprove the collection of fees for the provided services. These efforts led to the increase of the Company’srevenue in 2017 by about 3.5 percent. In order to ensure the requirements of metrological inspection, theCompany carries out continuous monitoring of the implementation of objectives for the replacement ofwater meters and their metrological inspection. In order to provide high-quality customer connection tothe networks, the Company has been:

1) improving the process of connections of new customers to the Company’s networks;

2) checking customer satisfaction with the quality of the services provided by the Company.

MANAGEMENT OF BUSINESS (OPERATING) RISKS

In the performance of both core activities and business support processes, the Company hires third parties- suppliers and partners - in accordance with the requirements of the Law on Public Procurement. Whenmanaging the risks associated with public procurement procedures (contract management, procurementof goods and I or services at higher than the market price, excessive duration of purchase of goods orservices purchased by way of public procurement, etc.), the Company seeks to ensure the most preciseplanning and execution of purchased goods and services; ensures continuous monitoring of the course ofthe procurement process and performs analysis of market prices of goods and services purchased by theCompany.

Information security risk management is based on the directions of information system (IS) securityactivities, performance of organizational and technical requirements defined in the IS security policy andtheir performance control. IS maintenance and development are carried out in accordance with ISsupervision and development process requirements. The Company has an approved IS business continuitymanagement plan for effective management of IS disruptions or incidents.

The Legal Unit is responsible for legal compliance risk management. Its representatives: a) regularly monitorthe changes in legislation and submit proposals for amending legal acts and comments to draft legal acts;

b) introduce respective changes to heads of respective divisions of the Company in a timely manner; c)participate in the decision-making process of the Company’s management, also in the process ofpreparation of internal legal acts and contracts with third parties.

The Company’s laboratory attested by Environmental Protection Agency ensures the control of the qualityof drinking water and compliance with inflowing and outflowing wastewater pollution standards set byexternal legal acts by conducting researches and identifying and implementing control of the qualityparameters of drinking water supplied to customers and wastewater pollution standards.

Risks associated with accidents at work, occupational diseases, civil and fire safety, occupational safety andhealth of the Company’s employees are managed to ensure the implementation of the requirementsprovided for by laws. The Company’s Occupational Safety Unit: organizes professional risk assessment,issuing personal and collective protective equipment, employee training, health checks of employees,sobriety checks, and conducts regular monitoring of the implementation of requirements established bylegal acts governing occupational, civil and fire safety in the units.

SHARES

On 31 December 2016, share capital of the Company consisted of 3.874.137 ordinary shares with the nominalvalue of EUR 28.96 per share. The Company’s share capital was increased by a property contribution of the Vilniuscity municipality in the value of EUR 469 000, which was registered in September 2017. On 31 December 2017,the number of shares of Vilnius city municipality for the property contribution totalled 16 189 units. The sharecapital of the Company was 3.890.326 ordinary shares with a nominal value of EUR 28.96 per share.

On 31 December 2017 and 31 December 2016, share capital of the Company was fully paid up. The Company hasnot acquired its own shares.

On 31 December 2017, the Company’s shareholders were:

31-12-20 17

Number of held Share of ownership,

shares percent

Vilnius city municipality 3.691.509 94,89

Vilnius district municipality 73.196 1,88

veneionys district municipality 69.738 1,79

aleininkai district municipality 55.883 1,44

3.890.325 100.00

PERSONNEL MANAGEMENT

EMPLOYEES

The basis for relationships with employees i5 ethical, respectful and equitable partnership-based behaviour, focuson safe working environment, professional development and career.

Year 2016 was the year of major structural changes, when the organizational structure of the Company waschanged in essence, in pursuit of a clearer division of functions, more effective management of support functionsand transparency. In 2017, the organizational structure remained the same, and the number of employeeschanged slightly.

According to data of 31 December 2017, Vilniaus Vandenys had 659 employees, of whom 42 were managers: 9top-level and 33 - middle-level managers. One manager manages 16 employees in the Company.

Distribution of employees by function: 61 percent of the Company’s employees worked in the Production Serviceand carried out functions related to core activities of the Company, 20 percent worked in the customer servicearea, and the remaining 19 percent engaged in support activities.

According to data of 31 December 2017,36 percent of the Company’s employees had a university degree and 20percent held a vocational training degree. The average length of service of employees in the Company was 15years in 2017, and as many as 208 employees worked in Vilniaus Vandenys 20 years or more. The Companyappreciates and respects its long-time experienced employees and awards them with a medal of gratitude for thelength of service in the Company (having worked in the Company 10, 20,30 and 40 years).

In order to ensure good atmosphere, a favourable environment for raising qualifications and motivation to work,a great deal of attention is paid to various initiatives to improve working conditions for employees.

During annual evaluation reviews, employees have the opportunity to look at their activities from a slightlybroader perspective, to rejoice over their achievements and analyse the reasons for failures, exchange feedbackand express their expectations to their managers. Annual reviews are a part of employee performancemanagement process, which help achieve better performance results. 40 percent of the Company’s employeestook part in annual reviews.

In pursuit of operating efficiency and having decided to move the Company’s headquarters from the Old Town toa more convenient location in another part of the city, employees were consulted on new premises. Employeestook part in a survey on a new location for the Company’s headquarters, its type and organization of work in thefuture. The survey was aimed at collecting the most possible amounts of information on the needs andexpectations of employees that they have for their future place of work.

Men make up 70 percent of employees of Vilniaus Vandenys, but the Gender Equality and Diversity Policyapproved in the Company on 6 October 2017 ensures gender equality and diversity in the organization. TheCompany strongly opposes any discrimination based on gender, race, nationality, language, origin, social status,beliefs, convictions or attitudes, membership of a political party or association, age, sexual orientation, disability,ethnicity or religion.

ORGANIZATIONAL CULTURE

Formation of value-based organisational culture, thus also increasing emotional rewards for employees, is one ofstrategic objectives of the Company. Its foundation was laid back in 2016, when the vision, mission and values ofthe Company were approved in joint discussions between employees and management. The Company promotes

RESPONSIBILITY for own actions and the environment, OPEN communication with customers, colleagues, partnersand the public, and PROACTIVITY in solving problems, finding the best and sustainable solutions.

Values and organizational culture were consistently fostered in 2017 in the implementation of measuresimportant to employees:

- Employee Selection and Adaptation Policy- Clear and transparent remuneration policy- Employee performance management system- Gender Equality and Diversity Policy- Discussions of performance results- Open internal communication, events- Employee engagement survey- Collective agreement- Training programmes- Ambassador programme

In order to have a motivated and engaged team, the Company’s management consistently and openlycommunicates with employees via various channels. Employees receive information from their direct managersduring meetings with management, on the internal intranet VIVA or find relevant news on the Company’s bulletinboards. The Company quarterly holds events for the presentation and discussion of results of a quarter formanagers of all levels, who then convey information to their employees. Cognitive events have also beenorganized for the Company’s employees, including summer jamboree, excursions to production units, open daysin the most interesting objects of the Company and days for getting to better know the Company.

To ensure a dialogue between employees and management, all employees of the Company participated inmeetings with the CEO and other members of the management team. During these meetings, managersintroduced financial results of 2016 and operational priorities in 2017, employees asked them questions ofinterest to them, also discussing relevant issues.

EMPLOYEE PERFORMANCE MANAGEMENT

Employee performance management is one of the most important methods of management and efficientgovernance of the Company, which helps spread the organization’s goals and build a positive relationshipbetween managers and employees, allows employees to voice their expectations and achieve better performanceresults at the same time.

The employee performance management system has been in place in Vilniaus Vandenys since 10 January 2017.In the first year, 40 percent of employees (270) took part in annual reviews and raised goals together with theirmanagers. The plan is to have 70 percent of the Company’s employees to take part in performance managementprocess in 2018 and 100 percent - in 2019.

TRAINING

The Company takes care of continuous professional training of employees, holds internal and external trainingsand ensures that employees have all the necessary certificates and develop competences necessary in their work.

In the beginning of 2017, all employees were presented with the annual training plan, which provides foremployee training priorities based on strategic goals of the Company. A team of internal lectors held some of thetrainings thus not only making the use of the budget designated for trainings more efficient, but also involvingand encouraging employees to share their knowledge.

2 603* employees took part in trainings in 2017: 1 150 attended mandatory trainings, 1 149 - generaltrainings and 304 - professional trainings. All employees of the Company have been trained on thesubject of occupational safety and health as well as fire safety.

In 2017, employees of Vilniaus Vandenys spent a total of 17416 hours in trainings. One employee received 24.70hours of training per year. EUR 76900 was allocated for trainings, which is three times more than 2016.

EUR 144 is designated for trainings of one employee per year, placing a special focus on occupational safety,prevention of professional diseases and employee performance management, as planned.

108 employees participated in the programme on occupational safety, also for training the employer or employerrepresentative on occupational safety and health-related issues, 169 employees took part in civil safety training,171 - in fire safety trainings, and 19 - in emergency management trainings.

The programme for preparing internal lectors was continued in 2017 - 41 internal lectors were professionallytrained and held trainings in various fields for their colleagues in the course of the year. The share of internaltraining in the overall training plan constituted 58 percent in 2017, meanwhile in 2016, internal trainingsaccounted for a mere 25 percent in 2016. In 2017, 7 times more employees were trained in internal trainingscompared to 2016.

In order to ensure good atmosphere in the team, high priority is given to the adaptation of new colleagues. Inorder to involve them in the Company’s life as soon as possible and provide them with all the necessaryinformation about the functioning of the Company, the Company started holding know-the-Company days fornew employees. During 2017, 3 such events took place at the Company, which were attended by 76 newemployees.

The Company has consistently promoted internal career. Open public selection is announced for each vacancy,but the necessary employees are primarily searched inside the organization. Priority is given to internal candidatesin competitions between external and internal candidates to fill up a vacancy.

In 2017,37 employees of the Company climbed up the career ladder: 25 advanced vertically and 12- horizontally.

Being open and responsible, the Company creates conditions for students of universities and vocational schoolsto acquire practical skills - 18 students had internships in divisions of the Company in 2017.

COLLECTIVE AGREEMENT

On 5 January 2017, collective agreement of Vilniaus Vandenys was updated after a ten-year break. The aim of thecollective agreement is to ensure the right balance between rights and obligations, to specify the legal normsestablished by the state, to plan for more favourable conditions for employees, to promote value-based employeebehaviour and to retain the best employees.

All managers of the Company, employee representatives and the Chair of the trade union took part in theconsideration of the new draft agreement. Various benefits, paid days-off or annual leave days and similarbenefits were planned for employees.

The collective agreement was re-examined in light of the requirements of the new Labour Code, and the newversion of the collective agreement took effect on 1 January 2018.

* Here and elsewhere in the Training’ section the total number of participants is specified, he. some employees may have taken pact intrainings more than once

OCCUPATIONAL SAFETY

In the implementation of value-based organizational culture, employees are expected to take a responsibleapproach to their work environment and instruments. An important emphasis is placed on occupational safety,because a safe and healthy working environment is created in compliance with these rules only.

Vilniaus Vandenys has consistently assessed the possible occupation safety risks and supported measures thatpromote health and well-being. The Company promotes responsible behaviour at work and observes zerotolerance for alcohol and narcotic and psychotropic substances at work. This is one of the key provisions forensuring safe and healthy working environment.

The following measures are used in the Company for the prevention of accidents and occupational diseases:• Assessment of professional risk of workplaces is carried out regularly.• Employees are supplied with personal protective equipment free of charge.• Health of employees is checked periodically in accordance with the procedure established by legal acts.• Employees are trained and certified on safety, health and fire safety issues.• Employees receive preventive vaccination against tick-borne encephalitis, tetanus, diphtheria and

influenza. For the convenience of employees, physicians, who perform these procedures on-site, areinvited to the Company.

Celebrating the World Day for Safety and Health at Work, elections of teams working the safest (attended by 40teams) were held for the first time in 2017. Production Service employees showed great interest in and supportfor the elections, while the winners gained experience in the area of safety at work visiting other Lithuanianmanufacturing companies, who are leaders in the field.

Distribution of 2017 2016 2015accidents by theirconsequences Accid On Incident Accid On the Incident Accid On the Incident

ent at the ent at wayt ent at wayt

work way work work*

Minor 3 1 2 1 3 8 1

Major

Lethal

Total: 3 1 2 1 3 8 1

Overall 6 4 9

On the way - accident on the way to! from work.

REMUNERATION SYSTEM

The Company has implemented remuneration policy aimed at providing objective and transparent remunerationto employees for the results achieved, created value to the organization and team, and at encouraging, motivatingand enabling employees to pursue common goals.The remuneration system is based on the Hay Group methodology, which ensures an objective assessment of

positions according to the required competence, assesses the complexity of problems and the level ofresponsibility typical of a certain position. Such assessment of job positions helps to objectively, transparently and

correctly remunerate the work performed by employees, ensure fairness inside the Company and a competitiveand market-based remuneration.

TOTAL REMUNERATION

Financial and equallypackage.

important non-financial (emotional) remuneration comprises the employee’s remuneration

Financial remuneration of each employee depends on the following key items:

• The level of job position determined according to the Company’s delegated responsibility andrequired qualification;

• Salary paid for the specific job position level in the market, which we check by participatingin the Lithuanian remuneration market research each year;

• Funds which Vilniaus Vandenys allocates for remuneration according to the salary budgetapproved each year;

Work results, initiative and value-based approach of employees, which we assess in the course of theperformance management process of employees each year.

FINANCIAL REMUNERATION

V

Printipal Iemurcr:it orcomponent (PRC)

‘A..

viroble remuirotcoup ocr? (VRC, bonuses,

allowances)

anmjalvRCfor achievementof annual goals

for disclosingunauthorizedconnections

for achievementof quarterLy

goals

NON-FINANCIAL(EMOTIONAL)

REMUNERATION

Recognition

Opportunities for growth and personalfulfilment

Work and organizational culture

Image of the organization

Career opportunities

Internal communication

Benefits

Greeti rigs, gifts

Paid Leave

Competence andqualification building

and values

Financial remuneration consists of the following:

• Principal (base) remuneration component specified in the employment contract paid each month;

• Variable remuneration component set for the job position used to promote the pursuit of theCompany’s goals;

• Bonuses paid to employees having observed cases of unauthorized use of water and/or dischargeof wastewater;

• Various social allowances, additionally paid days-off according to the approved collectiveagreement;

• Various trainings, financing of studies, which are aimed at professional or personal employeedevelopment.

Both the principal remuneration component (PRC) and the variable remuneration component (VRC) depend onthe responsibility of a particular position, the level of independence, freedom of decision-making and exertedinfluence on the Company’s results.

In 2017, VRC of 10 percent was set for all managers, senior specialists and specialists for the achievement of thegoals set for the employee in the course of the employee performance management process (during annualreviews) paid once per year, having assessed the result of the entire year. Additional VRC was set for all managersfor the achievement of the Company’s business goals, but its amount depends on the manager’s influence on theCompany’s goals and can range from 5 to 20 percent.

Employees are encouraged to pursue their individual performance goals, thus contributing to the implementationof the goals of the Company. VRC of 10 percent was paid for achieving them.

The percentage of achievement of all the individual goals of the employee must be at least 70 percent; otherwiseVRC is not paid. VRC for the achievement of individual goals for managers is calculated in the same manner,however, if a manager does not achieve his individual goals (i.e., achieves less than 70 percent of his individualgoals), he is not paid VRC for the achieved goals of the Company, even if the Company’s goals were achieved. Theamount of the VRC is set according to employee category as a percentage of the salary of the last calendar year,calculated over the period worked by the employee.

Approved mission, strategij

Bonuses and allowances can be paid in exceptional cases, motivating employees for their exceptional contribution

in the pursuit of the Company’s goals, for example, significant savings achieved, successful achievement of the

strategic goal of the Company, etc.

Emotional remuneration is enhanced by fostering an organizational culture that promotes cooperation, openness,

personal growth, personal fulfilment and responsibility for achieving common goals of the Company.

Average salary by employee categories

Employee category Average salary*

Board members 940

Top management 4285

Middle management 1967

Senior specialists 1372

Specialists 970

Workers 819

Top management — the CEO and directors of units.

Middle management — heads of departments, divisions and groups.

Senior specialists — employee category consisting of highly qualified employees with excellent knowledge of their jobspecifics appointed to be in charge of a group of employees (specialisls or workers.

Specialists — employee calegory consisting of employees who know their job well and have a certain profession.

Workers — category of employees who perform work assigned by others, making decisions exclusively in relation to the workthat they do.

SOCIAL RESPONSIBILITY

The basis of responsible activities of Vilniaus Vandenys has been captured in the Company’s mission and vision.

The key responsibility of the Company is to ensure continuity and quality of services provided to customers “Pure

water and clean environment for our community”). In this activity, the Company seeks to become an employer, a

service provider and a partner whose cooperation would be sought by other stakeholders (“Desirable employer,

service provider and partner”).

Strategic directions of operation include:

focus on the customer,

operational efficiency,

transparency of activities.

Strategic directions of Vilniaus Vandenys reflect interests of the key stakeholders and the Company’s

responsibilities to them:

- Customers

- Employees

- The public, local community

- Partners

CUSTOMERS

The main re5pon5ibility of the Company to its customers is the assurance of continuity of service provision andimprovement of quality of servicing them.

The Company has consistently been working in this direction and implementing the necessary changes. Havingapproved the Customer Service Standard in the Company at the end of 2016, all employees participated in relatedtrainings and started applying it in 2017, constantly checking their knowledge in the field. Also, updated serviceprovision agreement for customers took effect in May 2017, and a 5pecial focus was placed on new customers -

in order to make their connection more efficient, teams were formed specifically for this purpose.

EMPLOYEES

The basis for relationships with employees is ethical, respectful and equitable partnership-based behaviour, focuson a safe working environment, professional development and career.

In November 2017, employee opinion and engagement survey was conducted for the first time. It was organizedby the consulting company “Korn Ferry Hay Group” in accordance with international methodology. As many as90 percent of the Compahy’s employees completed the electronic questionnaire and expressed their opinion.This is a very high indicator for a manufacturing company, where about half of employees do not have a personalcomputerized workplace.

The obtained results revealed the employees’ perception ofVilnius Vandenys as an employer, their expectationsof management, things that help them and disturb them at work. Employees’ opinion helped identify thestrengths and weaknesses of the Company develop action plans based thereon, also identifying areas to beimproved first of all focusing on resolving issues of concern to employees and methods for resolving them.

The survey will be repeated each year in order to find out what expectations employees have of their employer.

The Company has continued its ambassador programme, with 25 employees actively participating in thedevelopment and strengthening of value-based organizational culture, ensuring a smooth process of changewithin the organization, effectively communicating and sharing information. The ambassador programmepromotes higher employee engagement in addressing issues that are relevant to the Company, improving workingconditions, participating in various community initiatives and projects (blood donation, voluntary collective work,charity campaigns).

THE PUBLIC, COMMUNITY

Vilniaus Vandenys actively cooperates with local community representatives and interested groups.

The Company contributed to the initiative of the Vilnius city municipality and set up 18 skating rinks in residentialareas of the city.

In commemoration of the World Water Day on the 22 of March, the Company’s employees visited schoolswhere they met with schoolchildren and told them about water, how it gets to their homes and what importantrole it plays in everyday life.

The Company collaborated with the Drug Control Department under the Government of the Republic of Lithuaniain the implementation of a European project-study aimed at identifying the extent of narcotic drug use in themajor cities of the EU. Vilnius is one of the cities participating in the project, and the Company is assisting theDepartment in taking samples for research. Wastewater samples allow researchers to measure the extent ofillegal drug use and urinary metabolites.

More than 200 employees of the Company volunteered in spring collective works in Nemenëiné (cleaning up thetown park), in wellfields of venionéliai, Liepkalnis and Tauras, next to the wastewater treatment plant inTitnago Street and in Vingriai springs.

One of the priorities of the Company’s activities is renovation and development of infrastructure, pipelines,wastewater treatment plants and water improvement facilities. These projects will have a positive impact on theCompany’s customer satisfaction with the services provided. Therefore, the Company actively cooperates withcommunities (nipikês, 1verynas) where it plans to carry out these projects by presenting and telling them aboutthe course of the projects and benefits to residents.

On May 18, the Company opened the gates of the Vilnius wastewater treatment plant to anyone interested inseeing where and how EU investments have been used.

Traditionally, in May and September the Company invited residents of Vilnius to visit the historic Liepkalnis waterstorage facility. More than 3 000 visitors got acquainted with sources, history and the current situation of watersupply in Vilnius.

In July, a meeting of representatives of Vilniaus Vandenys with ven&onys community was held for introducingwater management development plans to residents of the city.

In March and October, 54 employees of the Company joined the voluntary blood donation campaign of theNational Blood Centre.

ENVIRONMENTAL PROTECTION

Activities of Vilniaus Vandenys are inseparable from nature and its resources. The Company supplies waterabstracted straight from deep-water wells. Therefore, ensuring preservation of these natural resources,cleanliness and responsible use thereof is important in the long run.

Another important service is wastewater collection and treatment. After the wastewater is cleaned, water thatmeets strictly regulated requirements gets back into the environment — mainly into the rivers next to thewastewater treatment facilities. Therefore, a large degree of importance is attached to the used technologiesand the results from this activity.

Quality and Environmental Policy, the provisions of which are binding on all employees, was approved in theCompany in January 2017. It defines the key directions in the area of quality management that are closely linkedto the initiatives identified in the Company’s strategy.

Along with this policy, a number of processes and procedures were revised, because Vilniaus Vandenys aims touse the most advanced tools, technologies and processes in its activities, promote the rational use andmanagement of resources and thus reduce adverse impact of its activities on the environment.

The Company operates in accordance with the requirements of the integrated quality and environmentalmanagement system complying with ISO 14001 and ISO 9001 standards, which shows that the environmentalimpact of the Company’s activities is identified and managed, the Company’s activities comply with legal andother environmental requirements, and its integrated quality management and environmental protection systemensures good service provision by controlling the activities of each unit and precisely defining its responsibilities.The quality management and environmental protection system is implemented through processes that aredefined by the specifics of the work of divisions, ensuring their effective operation, monitoring and management.Each process is planned and controlled continuously in light of customer needs.

ISO certificate is a certificate from an independent organization having carried out an assessment of a third partyconfirming that the Company’s quality management system complies with ISO standard requirements. InFebruary 2017, the Swiss capital company “SGS KlaipEda LTD” carried out an audit of the Company and noted thata significant progress was achieved in the area of integrated management, quality and environmental protection,having implemented significant managerial changes and implemented professional and comprehensivemanagement of risks.

A significant progress and a leap in the quality of managerial processes was captured during the year: strategicand action plans were drafted, processes were described and regulated, and job descriptions were approved.

In February, the Company’s ISO Integrated Quality Management and Environmental System certificate wasrenewed for another three years.

In the beginning of April, Vilnius city, Vilnius district, venëionys and aIëininkai district municipalities approvedthe Company’s investment plan for 2017-2019. On this basis, the greatest share of funds will be allocated forreconstruction of the Vilnius wastewater treatment plant. Wastewater treatment plants in operation since 1986have not been renovated comprehensively since their opening. Sludge treatment facilities of the water treatmentplant, which eliminated unpleasant odours suffered by residents of Vilnius, were renovated in essence in 2012.

Water is a product used by our customers every day. It is very important for our health, household purposes andthe quality of life in general. Therefore, the Company seeks to become as open as possible to the community andshare the knowledge of its experts about the benefits of water.

In 2017, the Company continued the tradition of holding open day in the most interesting water managementobjects - Antaviliai water treatment plant, Vilnius wastewater treatment plant and SereikRkés park wellfield,providing an opportunity to see the exhibition of water management history of Vilniaus Vandenys. Two open doordays in more than a century old Liepkalnis water storage facilities were held, which were of great interest to thepublic and the media.

Employees of Vilniaus Vandenys take an active part in educational activities: they read lectures and hold classeson water in Vilnius kindergartens and schools, also in business enterprises. In 2017, more 20 meetings were heldat the time of which the Company’s employees promoted responsible and rational water consumption, told aboutthe path of water and the specialty of a water management specialist. The purpose of the meetings is toemphasize the quality of the water supplied and to promote not only a healthier lifestyle, but also more intenseconsumption of tap water.

MAJOR EVENTS OF 2017

5 January 2017

New collective agreement took effect.

1 February 2017

Re-certification audit of the ISO Integrated Quality Management and Environmental Protection System wascarried out. The management system was assessed in accordance with the requirements of the new ISO 9001:2015 and ISO 14001: 2015 standards; the validity of the certificate was extended for 3 years.

1 February 2017

Average volume of consumed drinking water per capita per month (1.78 m3) changed for customers who do nothave individual meters in the territory served by the Company.

1 February 2017

Implementation of employee performance management system was started. 40 percent of the Company’semployees discussed their performance expectations and agreed with their direct managers on individualperformance and trainings goals, the achievement of which will be evaluated in a year.

21 February 2017

Buildings of the headquarters of the Company in Vilnius were sold in a public auction. The auction was run by theinternational real estate consulting company “Colliers International Advisors”. “Asgaard Property” purchased thebuildings forming a common complex located in Dominikonq St. 9 and 11, with the total area of about 2.5thousand square meters, for the initial price of EUR 3.9 million.

1 March 2017

Cash transactions were given up in customer service divisions, switching to paying with payments cards, which ismore convenient for customers.

17 March 2017

Suppliers were invited to evaluate the minimum qualification requirements and technical requirements for objectof procurement for the starting reconstruction of the Vilnius wastewater treatment plant.

27Apr11 2017

The Company’s meeting of shareholders approved audited financial performance results for 2016 presented inthe Company’s annual report.

1 May 2017

Having used more than twenty different forms of drinking water supply and wastewater managementagreements, the Company switched to a single format of contractual documents. New two-part agreements cameinto force. The general part of the agreement is the same for all customers, and the special part of the agreement

signed separately with each customer provides for individual service provision conditions for each customer.

2 May 2017

The Board decided to present for the consideration of the general meeting of shareholders the question ofallocating dividends for a period shorter than the financial year, namely, from 1 January to 30 April 2017, and topresent the issue on the payment of dividends of EUR 4 million to the Company’s shareholders.

30 May 2017

Agreement for renting office space covering 1.856 square meters was signed with UAB BH Duetto.

5 June 2017

The National Control Commission for Energy Control and Prices approved the Company’s proposal to significantlyreduce the prices of drinking water supply and wastewater treatment services.

3 July 2017

Water management development plans were presented during the meeting with 5venionys community.

28 August 2017

Vilniaus Vandenys introduced an updated visual identity - a trademark symbolizing the Company’s wish to become

an open and modern company while retaining its reliability and care for the environment.

13 September 2017

The Company’s headquarters and customer service division moved to new premises at Spaudos St. 8-1, Vilnius.

26 September 2017

The Chair of the Board of the Company Darius Nedzinskas, independent Board members Arünas Bivainis and

Juozas Buitkus, and the CEO of the Company Aidas lgnataviëius resigned.

1 October 2017

Prices of the majority of main drinking water supply and wastewater treatment services reduced by about a fifth

took effect for customers in Vilnius, Vilnius district, alininkai and venionys.

11 October2017

Virgilijus 2ukauskas, Director of Production Service, took the post of Acting CEO of Vilniaus Vandenys.

17 October 2017

Members of the Board elected the Chair of the Board in the meeting of the Board of Vilniaus Vandenys. Directorof City Maintenance and Transport Department of Vilnius City Municipality Virginijus Paua was elected to thepo5t.

31 October 2017

In order to make services of Vilniaus Vandenys easily accessible to customers, the Company simplified itsprocedure for the connection of private customers connecting to networks built using EU funds.

2 November 2017

Vilniaus Vandenys announced an “amnesty” campaign. Residents could report unauthorized access to districtwater supply and wastewater management networks without incurring any sanctions. They were provided withthe necessary assistance from the Company’s specialists, they could immediately start using services lawfully, andreceived one year for obtaining the necessary documents.

2 November 2017

Employee engagement survey was initiated in the Company for the first time in order to find out the percentageshare of engaged employee, know their motivation level, efficiency, and to assess other staff indicators importantfor business results.

3 December 2017

Customer (private and business) satisfaction survey according to the international GCSI (Global CustomerSatisfaction Index) methodology was carried out in the Company for the first time. The total satisfaction index ofcustomers of Vilniaus Vandenys is 67 points, meanwhile the average of European utilities companies is 71 andthat of Lithuanian companies is 68.

DETAILS AND CONTACT DATA OF THE COMPANY

Name of the Company Private limited liability company Vilniaus VandenysLegal form Private limited liability companyDate of registration 27 March 1991Register manager State Enterprise Centre of RegistersCompany code 120545849Registered office address Spaudos 8-1, LT-01517, Vilnius, LithuaniaTelephone 1889E-mail [email protected] www.vv.lt

CUSTOMER SERVICE DIVISIONS OF THE COMPANY

Vilnius

Spaudos g. 8-1, Vilnius

I—V 8.00 a.m. —6.00 p.m.

venEionys

Vithiq g. 7, Svencionys

I—V 7.30 a.m. —4.00 p.m. (lunch break 11.30 —12.00)

aleininkai

Lydos g. 34, Milvydq k., alininkq sen., alininkq r. say.


Nemeninê

Piliakainlo g. 32A, NemeninE, Vilniaus r. say.


Customer service lines open 24/7

1889

Calls are charged based on the rates or the payment plan of your communication operator. Please note thatoperators charge calls to short numbers at different rates, thus we recommend checking the call price on youroperator’s website (Bite, Tele2, Telia).

+37052664455

CaH5 are charged based on the rates or the payment plan of your communication operator. You can call thisnumber both from Lithuania and abroad.

8 800 10880

Toll-free telephone for registering accidents.

vilniaus vandenys uab annual report and financial

Documents